Highlighting two hot trends in biopharma today--an avid interest in bolt-on acquisitions and a love of targeted therapeutics--Roche ($RHHBY) has gone public with a $5.7 billion hostile takeover bid for San Diego-based Illumina ($ILMN), a gene sequencing outfit the Big Pharma company clearly sees as a ticket to the front of the personalized medicine parade.
Analysts didn't waste any time endorsing this move. Roche CEO Severin Schwan (photo) has repeatedly emphasized the company's focus on developing new and better targeted drugs--particularly for cancer, where Illumina's expertise can help Roche and its subsidiary Genentech maintain a premier position. And with mega-mergers largely out of favor among the remaining pharma companies which haven't played that card, the Illumina bid is likely to help further heat up speculation that the industry will see a long string of these "bolt-on" buyouts through 2012.
Roche says it was forced to go hostile after Illumina's board failed to warm to its repeated overtures. "Roche has made multiple efforts to engage with Illumina in order to reach a negotiated transaction, but Illumina has been unwilling to participate in substantive discussions." That usually translates into a simple standoff regarding price, with Illumina holding out for more than what Roche was willing to offer.
Roche says it will hold the line at $44.50 a share; another common bargaining point at this stage of the game. And investors were betting big that Roche can do better. By late morning Illumina ($ILMN) was trading at close to $54, up a whopping 43%. Credit Suisse's Vamil Divan did nothing to quell the exuberance with a note indicating that Roche's bid is "very low." He also noted that General Electric or Siemens could step in as a white knight here, sparking a bidding war.
The Big Pharma company does have the ability to beef up the offer. And Roche is highly motivated.
"This ... will help Roche sustain its leadership position in targeted therapies, which we consider as highly promising," noted analysts at Bryan Garnier.
As the cost of gene sequencing has dropped swiftly, its potential in medicine has risen. Sequencing will not only identify new development targets but also better define specific patient populations that are most likely to respond to new cancer drugs. And with Illumina surging to the front of the field, Roche is clearly anxious not to be left behind.
A win here by Roche could also help San Diego's biotech community. In its release Roche says it plans to move the HQ for Roche Applied Science to San Diego as it merges operations.
ALSO: Kindle readers: Download our ebook 'Companion Diagnostics: The Future of Medicine' ($4.99)
Or, download the report to your computer for free here.