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Q&A: Roche Diagnostics' Daniel O'Day on Roche's Plans for Illumina

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ODayPhoto2.jpgName: Daniel O' Day
Age: 47
Position: Chief operating officer, Roche Diagnostics Division and member of the Roche Corporate Executive Committee, since 2010
Experience and Education:
President and CEO, Roche Molecular Diagnostics, US, 2006-2010
General manager, Roche Pharma, Denmark, 2003-2006
Head of corporate planning, Roche Pharma, Japan, 2001-2003
Business unit head, arthritis and respiratory, and lifecycle leader for Tamiflu, Roche Pharma, Switzerland, 1998-2001
Various commercial and sales positions, Roche Pharma, US, 1987-1998
MBA, Columbia University, 1997
BSc in biology, Georgetown University, 1986

Almost two weeks after Roche
made its hostile takeover bid for Illumina, customers, employees, and investors are anxiously awaiting new developments, and are wondering how an eventual acquisition of Illumina might affect them. Later this week, Illumina is expected to respond to Roche's offer and make a recommendation to its shareholders.

In Sequence spoke with Daniel O'Day, chief operating officer of Roche Diagnostics, this week to find out more about the firm's plans for integrating Illumina into its business. Below is an edited version of the conversation.


Why does Roche want to acquire a second DNA sequencing technology company? Is 454 not good enough anymore?

The reason that we are interested in acquiring Illumina is that, first of all, it's a very strong sequencing company, it's the number one in sequencing and microarrays today, and in fact, we feel it's very complementary to our 454 and NimbleGen business, which is also why we see a very good fit here. They have different capabilities, they have different technologies, and it's something that we think combined can make an even stronger presence in the genomics marketplace.

Where do you see the greatest potential for clinical or diagnostic applications of sequencing, and why do you think the technology is now mature enough to start developing platforms for that?

Until recently, I think the technology was really more geared towards large sequencing labs only, due to the cost, due to the throughput, due to some of the read length and accuracy. And recently, what we have seen in the short-read technology, particularly at Illumina, is that it's gotten to a stage where it's now really appropriate, with the advances that have been made in short-read technology, for it to be much more commonly used, first of all, deeper into the research segments outside of just the very large genomic centers and more into the medium to smaller size research labs, because the cost and throughput is at a level now that really make it more appropriate for that.

And secondly, as you mentioned, in the mid to longer term, we see the potential for this technology also in the clinical setting. I think there will be many therapeutic areas where this will have utility, but probably the most promising one today would be in the area of oncology/cancer. And the reason for the timing now is that again, we feel the technology is at a stage where it could be applied in a clinical setting from a cost and accuracy standpoint. And also, there is a big demand growing out there in the clinical community for this technology. The reason that demand is growing is the advances that have been made in science over the past decade. The understanding of the mutational aspects of cancer is increasing every day, and more importantly, the action that we can take on that understanding is increasing every day, with more therapeutics, a better understanding of how to approach the course of disease. So these things are coming together at the same time, and I think that will also, in the mid to longer term, drive the demand for sequencing in a clinical setting.

Why does Roche need an acquisition to move into the clinical diagnostic sequencing market? Why is it not sufficient to collaborate on clinical applications of Illumina's platforms, as Siemens Healthcare Diagnostics is doing?

Part of what has made Roche Diagnostics, I believe, the number one company in diagnostics, and consistently allowed us to grow faster than the marketplace, is that we really take advantage of the breadth of technologies that we have. We take advantage of our global scale, and by that, I mean we do have a total solution offering for our customers out there, everything from our immunoassay clinical chemistry business through our number one PCR business to our number one tissue diagnostics business. We think there is great complementarity now moving forward also in incorporating sequencing into that technology offering, in the same way that we leverage the other technologies. So we think having those within one organization provides a unique service to our customers and allows us to provide better solutions for patients at the end of it.

Can you comment on how an acquisition of Illumina would affect any partnerships Illumina currently has with other diagnostic firms, like Siemens?

No, I could not comment on that because I'm not intimately familiar with those types of collaborations. What I can say is, from a customer perspective, and this is very important, we would envision that all customer commitments and contracts that are in place we would intend to honor post transaction, on both the Roche side and the Illumina side.

Researchers we have talked to have said they are afraid that if Roche takes over Illumina, this would stifle innovation of sequencing and array technology, which is what they said happened after Roche acquired 454 and NimbleGen. What's your response to that perception?

Roche has a very steady track record of investing into businesses that we acquire. For 454, we made significant advances on the long-read technology, with new platforms, new applications since we launched that. The same with NimbleGen and our microarray business; we significantly expanded the product offering there.

And I would point you to an acquisition that's a bit more similar in nature in terms of scale: If you look at the Ventana acquisition, in terms of how we have invested in that program, and that company, while also maintaining the culture, I think it's another good example. We continue to be the number one company in tissue diagnostics, we have in fact invested significantly in in-house research, we have had two significant acquisitions with Ventana, one in the area of digital pathology with BioImagine, and recently, a very innovative biomarker p16 assay for cervical cancer.

But I think regardless of what business you look at at Roche within diagnostics, I would say our track record speaks for itself in terms of investment, in terms of growing those marketplaces, and we would certainly intend to do the same with Illumina as well. This is a growth acquisition story, this is an investment scenario, this is something we would significantly invest in also in the future.

If Roche acquires Illumina, what will happen to 454? How do you plan to split your R&D investments between these two companies and their technologies?

We feel these two technologies are very complementary. We would certainly continue to invest in both, the long-read sequencing technology for which we believe 454 really is state of the art, with applications like de novo and amplicon sequencing … while taking advantage of the high growth in the sequencing market for the short read applications, from whole-genome to RNA sequencing to epigenomics. And these two concepts, and investing in both in a complementary fashion, we think will provide a better overall solution to the customer base. In fact, you could even have one sample, depending on the question you are trying to answer, run on both short-read and a long-read technology.

Do you plan to keep moving the 454 technology further into clinical and diagnostic applications, or will those efforts be more focused on Illumina's platform in the future?

I think that's something we would have to look at post integration, once we understand the nature of the plans also of Illumina, and what we have in our plans. So I would keep that question open for right now until we have a chance during the integration phase to look at that and make the best solution forward for the clinical community and, eventually, for patients.

How important do you think Jay Flatley and his team will be for the continued success of Illumina, and how hard will you try to keep them on board?

I have tremendous respect for the management team and employees at Illumina. I believe what they have been able to accomplish in their history really speaks for itself in terms of being able to innovate and in terms of being able to provide solutions to the research-based community. And people, as we know at Roche, in an innovation business, are really key to what drives progress. It's something we have a great appreciation for, both on our diagnostics and our pharma side, and it's also something we take great care of in all the transactions we have been involved in in the past, and we will here as well.

As you know, we haven't contemplated too many things about the integration of the two companies as we are firmly focused on the transaction process right now, but we did announce that upon completion of the transaction, we would in fact combine our Roche Applied Science business into Illumina and we would headquarter that business out of San Diego, because that would then become really the core mass of our future life science business. We would maintain operations, of course, in Penzberg, Germany, which is a unique site for us on the diagnostics side, and also on the Roche group side because we have pharma activities there.

Again, back to our track record, if you look at what we have done with other acquisitions in terms of creating opportunities for employees, investing in science and motivating employees in that fashion, I think that Ventana and others are good acquisitions to look at in terms of how successful they have been, how we have been able to maintain those cultures, maintain the key individuals, and inspire them in a broader organization with even more possibilities.

You mentioned the San Diego and Penzberg sites. What about Illumina's Cambridge, UK, site, the cradle of the Solexa technology, and also 454's site in Branford, Connecticut?

At this stage, what's important to remember is that this is certainly not a cost-cutting acquisition, this is a growth acquisition; it's something we'll continue to invest in. We will be looking at those and other questions at an appropriate time, when we get to the integration phase, and take the appropriate actions then, depending on the detailed information and the review of the integration. But it would be a bit too premature to look into all of those details at this stage. We recognize that there are a lot of questions about that, but at the same time, we need to focus on the transaction right now. We are functioning as two separate organizations, separate businesses, and when the time comes, we will sit down with the experts and take a look at these questions.

In your announcements, you have focused on Illumina's sequencing business and the prospects for that. Can you comment on your plans for sustaining Illumina's array business within Roche?

We continue to believe that the combination of sequencing and arrays provides the best solution for the genomics marketplace out there. They answer different questions, they provide different utility for both researchers and, potentially, clinicians out there. So, similar to what I have said about the sequencing business, we would continue to invest in the microarray business, both Roche's and Illumina's, and find the best path forward there as the technologies continue to evolve.

Does Roche also intend to move Illumina's arrays into the diagnostic arena, or will that business remain focused on the research market?

Again, without the full information, without all the understanding of Illumina's microarray business, their plans, it would be too premature to answer that question. I would look to get into that in more detail after the closing, in the integration phase.

Since you have not had any direct negotiations with Illumina about this merger, how much do you actually know about Illumina's R&D pipeline, in particular about its development of so-called "third-generation" sequencing technology?

As you can imagine, we have of course looked at all the publicly available information; that's what we are working off of. We have a deep understanding of sequencing technology because of our experience with 454, because of the other collaborations we have in sequencing, and we have been a real student of the new technologies from Illumina and others as they have been presented. So that is something that we would look to understand in a much more deep way after the closing of the transaction.

Some people say that Illumina will face some quite formidable competition in the clinical sequencing market from Life Technologies' Ion Torrent platform. Why are you betting on Illumina, and is there a risk that its technology has already reached its limits in terms of cost and throughput?

First of all, as in most markets that we operate in, we fully believe that there will be competition in these marketplaces, and frankly, we think that's healthy.

And in terms of our belief in Illumina's technology, both in terms of our technical analysis and also our market analysis, we are very confident that Illumina has the world-leading sequencing technology today. We have also looked into what they plan to introduce in the short to medium term, and we think they will continue to be very competitive. At the same time, we are an organization that continues to invest in our technologies, whether it's the immunoassay business, whether it's molecular, whether it's tissue diagnostics, so we believe that we need to invest to remain competitive, and to have a good offering for our customers, and that's how we would approach this.

Roche has said that its current offer for Illumina represents "full and fair value" of the company. However, industry observers have said that given Illumina's product pipeline, this offer is too low. They also noted that in past acquisitions, Roche increased its initial offer. How much are you prepared to bargain for Illumina?

We put a lot of time into developing this offer. We really looked at the current technologies, the marketplace advantages, the marketplace risks, which are also out there, and that's how we arrived at what we are very confident is a full and fair offer, a very attractive offer for the assets of Illumina, and we stand by that, and are confident also that the shareholders of Illumina will see the value of this offer.

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