Roche Aims for Illumina

Roche Holdings Ltd. (RHHBY) recently announced that it has placed a bid to acquire all the outstanding shares of Illumina Inc. (ILMN - Snapshot Report). Roche’s offer of $44.50 per share (aggregate value $5.7 billion) in cash represents a 64% premium over Illumina’s stock price on December 21, 2011.

On December 22, 2011, rumors in the market about a potential transaction between Roche and Illumina had pushed up Illumina’s stock price significantly.

We note that Roche had made multiple efforts in the past to strike a deal with Illumina, but the latter was unwilling to participate in substantive discussions. This led Roche to commence a tender offer to purchase Illumina’s outstanding shares.

Post the potential acquisition, Roche intends to combine Illumina with its Applied Science business, thereby strengthening its current offerings in the Life Science market. Roche operates through two segments – Pharmaceuticals and Diagnostics. Applied Science is a wing under the company’s Diagnostics division.

Roche believes that this acquisition will strengthen its position in the Sequencing and Microarrays market and will help address the growing demand for genetic/genomic solutions.

We note that this is the second acquisition by Roche in less than six months. In the fourth quarter of 2011, the company acquired all the shares of Anadys Pharmaceuticals Inc. at $3.70 per share, bringing the total consideration price to $230 million.

The acquisition of Anadys augmented Roche’s hepatitis C virus (HCV) portfolio, with Anadys’ lead pipeline candidate – setrobuvir (ANA598). Setrobuvir, which is currently in mid-stage trials, is being studied in combination with Roche’s pegylated interferon (Pegasys) and ribavirin (Copegus).

Anadys is also developing ANA773, an oral, small-molecule inducer of innate immunity, currently in early-stage trials, which might be used for treating HCV as well as other chronic infections and cancer.

Although, in the short-term we have a Zacks #4 Rank (Sell rating) on Roche, we believe that these transactions will help add to the company’s portfolio, thereby driving long-term growth.

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