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With Illumina Acquisition on Ice, What is Roche's Next Move in the Sequencing Space?

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By Monica Heger and Julia Karow

Following Roche's withdrawal of its tender offer for Illumina last week — after courting the firm's shareholders for almost three months — the Swiss drug and diagnostics developer is left to reconsider its options for expanding its portfolio of sequencing technologies.

While it's possible that Roche may still approach Illumina with another offer over the next year, it appears that the company is also looking for new possibilities.

Claudia Schmitt, a spokesperson for Roche, told In Sequence this week that the company "will continue to consider options and opportunities to develop further its portfolio of businesses in order to expand its diagnostic leadership position."

Schmitt did not elaborate on what options it is considering, but said that Roche has been talking to research centers at three large universities that are developing sequencing technologies.

As far as technologies that are closer to commercialization, one possible new partner may be Oxford Nanopore Technologies, which plans to roll out its strand sequencing technology this year, but it appears that the firms have not yet entered discussions regarding any sort of partnership.

The Swiss newspaper Der Sonntag reported on Sunday that Roche has had early talks with Oxford Nanopore about a possible collaboration. Schmitt did not comment on these alleged conversations but confirmed that Franz Humer, Roche's chairman, told a journalist from the paper in early March that the company has "a very good relationship" with Oxford Nanopore.

Oxford Nanopore officials, meantime, told In Sequence that the firm is not engaged in such discussions with anyone at this time.

Illumina Deal Still Possible?

While Roche has withdrawn its $6.7 billion tender offer for Illumina, some analysts think an acquisition is still possible.

"My view is that there's still a deal to be had," William Blair analyst Amanda Murphy told In Sequence. "Certainly, the strategy has changed for Roche," which will "perhaps lead to more private discussions," she said.

A number of things could happen to make such a deal possible, she said. First, Roche could increase its price. Illumina did not say that it was unwilling to negotiate with Roche under any circumstances, she noted, only that it would not negotiate because Roche's offer — initially $44.50 per share and later raised to $51 per share — was inadequate.

A few investors have said publicly that a potential starting point for a new offer would be at $60 per share or more, she said. "I don't think it's a question of, 'Is Illumina willing to consider a transaction?'" she said, but rather, "At what price point will Illumina consider a transaction?"

An increased price would also depend on Illumina continuing to perform well, Murphy said. "Roche could come back to the table if Illumina stocks get depressed." The company's shares were trading at $43.74 as In Sequence went to press mid-day Tuesday.

"I think there's still a deal there, but it could be protracted," she added.

Harry Glorikian, founder and managing partner at Scientia Advisors, also doesn't think a deal with Illumina is out of the question. Looking at Roche's history of acquisitions, "the deals didn't happen overnight," he said. "Some took up to a year or even more."

For instance, Roche's hostile takeover of biotech firm Genentech took around nine months, during which time the company increased its bid from $89 per share to $95 per share.

Glorikian does not think that the companies would be able to do a deal in private, however. "Both are publicly traded companies, and there's been a lot of public discussion."

Whether or not a deal with Illumina eventually happens, the one certain thing, said Glorikian, is that "clinical sequencing in the next three to five years is going to be a critical component for Roche."

"Both its diagnostic and its pharmaceutical businesses need to have a way of playing in that space," he said.

While Roche currently owns and markets the 454 sequencing platform, Glorikian said that the company would likely not focus on 454 as a clinical sequencing instrument, although he did say that it could have some very specific applications, like HLA typing, for instance, where its long reads could be particularly useful.

Murphy also doubts that Roche will advance the 454 platform for clinical sequencing purposes.

"I think they've been pretty clear that they're looking for another platform," she said. "I don't think it's a question of going internal or buying," she said. "They're going to buy something if they want to do sequencing in diagnostics."

Oxford Nanopore, Life Tech, GnuBio?

If a deal with Illumina does not happen, Roche will have to enter the clinical sequencing space some other way, and it has indicated that it has other options in the sequencing market.

"We know that they like platform businesses," Glorikian said. "Especially if you look at how Roche has been built, there are platforms that are sold into multiple venues." Roche needs to "think about how to fill that part of its business segment."

Life Technologies, Oxford Nanopore, and GnuBio are all potential options, he said.

"Even though they have 454, they need to look for other platforms that will take them farther than they are today," he said, which might point toward a technology that isn't currently on the market.

Additionally, he said he wouldn't discount Life Technologies just because it is an "incumbent" player in the field, and said that the Ion Proton in particular is a promising platform.

A deal with Life Tech may not be a straightforward acquisition, he said, but could instead be more of a partnership in the sequencing space. "For Life Tech, you have to look at all the angles."

While Murphy acknowledged that the Ion Proton and Oxford Nanopore technologies were promising, she said it is still "very early in the commercialization of those platforms."

Furthermore, a deal with Oxford Nanopore isn't a given. Oxford Nanopore CEO Gordon Sanghera told In Sequence via e-mail this week that, as announced in February, the company still intends to commercialize its DNA strand sequencing products directly to customers.

"This position has not changed and Oxford Nanopore is not engaged in collaboration or commercialization talks with any other companies for these products," he said.

Ultimately, if Roche is "looking to expand sequencing into the clinic, and taking an instrument through the [US Food and Drug Administration], at this point Illumina seems like the best option," Murphy said.

Illumina has said previously that it plans to file the MiSeq for 510(k) clearance with the FDA this year.

Alternatively, rather than focus on new sequencing technology, Roche may look to bolster its position in the workflow around sequencing, Glorikian said.

"There are very valuable assets on the front end and back end that bring it all together," he said. This includes sample prep, bioinformatics, and assays such as multiplexing kits or HLA typing kits.

Roche has already made strides in that direction, launching an HLA kit for its 454 platforms last April and two assays to detect mutations in genes associated with leukemia just this week.

Additionally, Roche said last week that it would be automating sample prep for the GS Junior later this year or early next (IS 4/17/2012).

IBM and University Collaborations?

In addition to acquisition possibilities in the commercial sequencing market, Roche also has its eye on earlier-stage technologies and has several collaborations underway on this front.

For example, the company is collaborating with IBM to co-develop a nanopore sequencer based on IBM's DNA transistor technology. As part of the agreement, Roche is funding development of the technology at IBM and is providing additional resources through its 454 subsidiary (IS 7/6/2010). The partners have not yet provided a commercialization timeline for this technology.

Last year, Roche also licensed nanopore sequencing technology developed by Stuart Lindsay at the Biodesign Institute at Arizona State University and Colin Nuckolls at Columbia University.

The company has said previously that it plans to use the nanopore readout technology developed by Lindsay and Nuckolls in conjunction with IBM's technology to create a single-molecule nanopore DNA sequencer (IS 10/11/2011).

Roche has not given a timeline for when it expects to commercialize this instrument, but Glorikian said that he thought this project was more of a long-term project and not technology that could be used clinically in the next five years.

This week, Roche confirmed that it has been talking to research centers at three large universities that are developing sequencing technologies, but did not disclose which universities or whether the three centers were in addition to the technology it has already licensed from Lindsay and Nuckolls' labs.

Potential collaborators include academic research teams working on new sequencing technologies with funding from the US National Human Genome Research Institute's "$1,000 Genome" program (IS 8/23/2011, IS 9/14/2010).

Some of these groups already have ties to industry, so Roche's options for collaborations may be limited. For example, Oxford Nanopore licenses intellectual property developed by Daniel Branton, George Church, Jene Golovchenko, and Charles Lieber at Harvard University; David Deamer and Mark Akeson at the University of California, Santa Cruz; and John Kasianowicz at the National Institute of Standards and Technology. Oxford Nanopore's founder Hagan Bayley is also collaborating with Reza Ghadiri's group at the Scripps Research Institute.

Amit Meller at Boston University is a co-founder of NobleGen Biosciences, which plans to commercialize his optical nanopore sequencing technology.

Other teams working on promising new approaches have not yet licensed their technology to a commercial entity — for example Jens Gundlach's group at the University of Washington, who recently published a proof-of-concept study for its nanopore strand sequencing technology (IS 3/27/2012).

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