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Roche's Proposed Acquisition of Illumina Would Mean Further Consolidation of Array Market

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By Justin Petrone

Roche last week made an unsolicited bid to buy Illumina for approximately $5.7 billion. The company said in a statement that the transaction would "strengthen Roche’s position in sequencing and microarrays to address the growing demand for genetic [and] genomic solutions."

Illumina meantime postponed the release of its fourth-quarter and full-year 2011 financial results as its board reviews Roche's offer and adopted a so-called poison pill provision in response to "deter coercive and otherwise unfair takeover tactics."

Should Roche succeed in its bid, Illumina's array offerings would supplement Roche's NimbleGen business, which it acquired in 2007 for $273 million (BAN 6/19/2007 ).

A successful acquisition would further consolidate an array market that has narrowed over the past decade to around four major manufacturers — Affymetrix, Agilent Technologies, Illumina, and Roche NimbleGen. Other players, including GE Healthcare, Applied Biosystems (now part of Life Technologies), and Nanogen all shuttered or sold off their platforms in recent years (BAN 1/2/2008).

If successful in its bid, Roche plans to combine its existing Applied Science business with Illumina and move its Applied Science headquarters to San Diego, while maintaining operations in Penzberg, Germany, where Roche Applied Science is currently based.

The company did not outline its plans for Illumina's array business or discuss its plans for integrating it with NimbleGen, which is headquartered in Madison. Wis.

While Roche officials have emphasized Illumina's sequencing activities as the impetus for the acquisition, arrays contribute a substantial portion of Illumina's business — approximately 41 percent of total revenues in 2010, the last full year for which figures are available.

Roche is proposing to acquire all outstanding shares of Illumina for $44.50 per share in cash. The Swiss healthcare giant also intends to nominate a slate of "highly qualified, independent candidates" for election to Illumina's board of directors and "propose certain other matters for the consideration of Illumina's shareholders at Illumina's 2012 annual meeting, which, if adopted, would result in Roche-nominated directors comprising a majority of the Illumina board."

Illumina has apparently not been receptive to Roche's overtures. Roche said in a statement that it is making its proposal after "multiple efforts to engage with Illumina in order to reach a negotiated transaction," were rebuffed.

In a letter sent to CEO Jay Flatley on Jan. 25, Roche Chairman Franz Humer referenced Illumina's "lack of interest in such a transaction" and described Illumina as "unwilling to engage in any meaningful dialogue on this matter."

Roche CEO Severin Schwan said in a conference call last week that the firm had approached Illumina about a deal in December but "unfortunately the board of Illumina has not been interested to negotiate a business combination."

In the same call, Chief Financial Officer Daniel O'Day sought to convince investors of the benefits of the acquisition, citing "complementarity" between Illumina's sequencing and microarray businesses and "what we do in PCR and tissue diagnostics and even, eventually, in terms of cancer diagnostics … what is done in our immunoassay portfolio."

Illumina in a statement acknowledged Roche's proposal and said its board will "thoroughly review Roche's proposal and make a recommendation to stockholders in due course that the board believes is in the best interests of Illumina stockholders." Illumina stockholders were advised to "take no action" pending the board's recommendation.

Illumina provides array offerings for genome-wide and focused genotyping and methylation profiling, while Roche's array-related menu includes chips for comparative genomic hybridization, copy number variation studies, sequence capture, gene expression, and also methylation profiling.

Both firms have pledged to submit their array-based offerings for clinical cytogenetics to the US Food and Drug Administration for clearance and have discussed the further use of their chips in molecular diagnostics (BAN 1/17/2012).

Poison Pill

Following the announcement of Roche's offer, Illumina adopted a provision to thwart the takeover bid and postponed the release of its Q4 and FY 2011 earnings.

Under the new rights agreement adopted by its board, one preferred stock purchase right will be distributed as a dividend for each share of Illumina's common stock for shareholders of record as of the close of business on Feb. 6. According to the agreement, if any person or group, including Roche, becomes the holder of 15 percent or more of Illumina's stock, then shareholders — excluding those owning 15 percent or more of the stock — would have the right to purchase additional shares at the then-current exercise price, but the shares would have a market value of twice that exercise price, meaning that the shareholder would be able to buy a share of Illumina at half the market price.

In addition, the newly adopted agreement stipulates that if any person or group becomes the owner of 15 percent or more of Illumina's stock, and if Illumina merges with another firm, shareholders of Illumina as of the end of business on Feb. 6 will have the right to purchase at the then-current exercise price the acquiring company's stock, which would have a value at twice the value of that exercise price.

Owners of 15 percent or more of Illumina would be excluded from this right, as well.

In a statement, Illumina said the rights agreement was created to "deter coercive and otherwise unfair takeover tactics" and was adopted in response to Roche's bid for the company. Roche responded by saying it was "disappointed" with Illumina's actions.

Illumina CEO Jay Flatley said in a statement that the company adopted the provision to "ensure that our stockholders receive fair treatment and protection in connection with any proposal or offer to acquire [Illumina], including the proposal announced by Roche, and to provide stockholders with adequate time to properly assess any such proposal or offer without undue pressure while also safeguarding their opportunity to realize the long-term value of their investment in the company."

Though Illumina delayed the release of its earnings, which had been scheduled for Jan. 31, it reaffirmed preliminary results announced earlier this month at the JP Morgan Healthcare Conference.

It expects fourth-quarter revenues of about $250 million, which would be a 4 percent decrease from its 2010 fourth-quarter revenues of $261.3 million. It also said that it expects to meet or exceed analysts' expectations for 2012.

While the company did not break out expected Q4 revenues for its different business areas, Flatley said at the JP Morgan conference that the firm had "record overall microarray orders" during the fourth quarter of 2011 (BAN 1/17/2011).


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

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