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Illumina Stock Gains Amid Report of New Bid from Roche

NEW YORK (GenomeWeb News) – Shares of Illumina's stock rose as much as 9 percent today following a report that the San Diego-based genetic analysis tools firm and Roche may have agreed to a deal for Roche to acquire Illumina for $66 per share, or approximately $8.14 billion.

Swiss newspaper L'Agefi reported the possible deal between the firms today, adding that an announcement may come during the first half of January, sending shares of Illumina as high as $57, with about 8 million shares of the company's stock exchanging hands, nearly five times Illumina's average daily volume for the past three months.

Both Roche and Illumina declined to comment on the report, which comes about eight months after an original bid by Roche for Illumina failed. In January Roche launched a hostile bid for the company at $44.50 per share, valuing the deal at around $5.7 billion. It eventually raised its offer to $51 per share, or $6.7 billion, which still was not enough to get Illumina to submit to being bought.

In the months since, Roche repeated that it remains interested in the next-generation sequencing space, though its CEO Severin Schwann told another Swiss newspaper Der Sonntag in June that it would not pursue another deal for Illumina.

Credit Suisse analyst Vamil Divan said that even though there are other firms in the sequencing space that Roche might be able to buy for less money, Illumina is the market leader and is further ahead of the curve in regulatory issues, a crucial criterion in clinical sequencing, which is an important longer-term opportunity in diagnostics for Roche.

"They do see the potential of sequencing being a very important clinical diagnostic tool in the next few years, and I think they do want to get in front of that and be involved in the discussion as the companies file these instruments with the [US Food and Drug Administration] and the FDA looks to clear them for clinical diagnostic purposes," Divan said.

Since Illumina turned down Roche, rumors have sporadically sprouted that Roche was again interested in acquiring the firm. Today's report, however, is the first with an actual dollar amount attached.

The analyst community is divided about the validity of the L'Agefi story, though, with some expressing skepticism that Roche would woo Illumina again so soon after it was rejected or that it would increase its last bid made in April by $15 per share.

David Ferreiro of Oppenheimer said that he thought Roche would wait to see whether market dynamics during the next year would allow it to "influence a cheaper price."

But, he added, if Roche is, in fact, proposing a $66 per-share-price, it would be enough to get both parties to the table and get a deal finalized at a price close to that offer.

Piper Jaffray's William Quirk said that he sees no "outsized motivation" on Illumina's part to do a deal now, but he noted that given Roche's experience operating in the diagnostics space and its sheer size it has the ability to do something Illumina would find challenging: taking sequencing to the point where it is used routinely in clinical practice from its current state as "a niche and new toy offered to clinical laboratories."

Jon Groberg of Macquarie Securities said in a research note that if the two companies can agree on a price, the deal makes sense for a number of reasons, including near-term uncertainties surrounding Illumina's end markets. If sequestration occurs, cutting the National Institutes of Health budget by about 8 percent, Illumina, which is heavily dependent on the academic/government space, could see revenues negatively impacted.

He also noted "inevitable" pricing pressures in the sequencing space, Illumina's need to "at least triple its sales force," and Roche's "apparent strategic determination" to have a larger footprint in the next-generation sequencing space.

Roche has approximately 9 percent of the NGS market, Groberg estimated, compared to Illumina's 64 percent, followed by Life Technologies' 22 percent.

Illumina is currently pursuing a purchase of its own, that of Complete Genomics, though there has been some speculation that it may be more interested in delaying BGI-Shenzhen's $117.6 million buy of the Mountain View, Calif.-based sequencing services firm than in actually acquiring the company.

Complete Genomics has said that if the BGI deal is not completed by the end of January, it may face the possibility of going out of business.

If Illumina and Roche complete a deal, or are seriously exploring one, Illumina would likely have to discontinue its bid for Complete Genomics, Credit Suisse's Divan said.

In afternoon trading today Illumina's shares on the Nasdaq were up 8 percent to $56.19.