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Derek Lowe The 2002 Model

Dbl%20new%20portrait%20B%26W.png After 10 years of blogging. . .

Derek Lowe, an Arkansan by birth, got his BA from Hendrix College and his PhD in organic chemistry from Duke before spending time in Germany on a Humboldt Fellowship on his post-doc. He's worked for several major pharmaceutical companies since 1989 on drug discovery projects against schizophrenia, Alzheimer's, diabetes, osteoporosis and other diseases. To contact Derek email him directly: Twitter: Dereklowe

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January 27, 2012

Roche Goes Hostile for Illumina

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Posted by Derek

Roche is not only a big drug company, it's a big diagnostics company. And that's what's driving their unsolicited bid for Illumina, a gene-sequencing company from San Diego. Illumina has been one of the big players in the "How quickly and cheaply can we sequence a person's entire genome" game, and apparently Roche believes that there's something in it for them.

But as that Reuters link above shows, a lot of other people don't agree, and would rather partner than acquire (Chris Viehbacher, CEO of Sanofi, seems to have been waiting for the opportunity to unburden himself of thoughts to that effect). He may well be right. Sequencing has been a can-you-top-this field for some time, and I don't think that the process is finished yet. What if you buy a technology that's superseded before it has the time to pay off? What if the market for sequencing doesn't get as large, as quickly, as you're hoping? Those were Illumina's worries, and now they're going to be Roche's; you can't buy the promise without buying those, too.

Matthew Herper at Forbes is having very similar thoughts, and points out that Roche has done this sort of thing before. For now, we'll see what Illumina might be able to come up with to avoid being Roched.

Comments (12) + TrackBacks (0) | Category: Biological News | Business and Markets


1. Anonymous on January 27, 2012 10:12 AM writes...

I suppose it's better to be Roched than Pfizered.

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2. Biotechtranslated on January 27, 2012 10:33 AM writes...

It would be interesting to be a fly on the wall at Roche right now. The question is, what is the strategy behind the attempted acquisition?

The most obvious answer is that Roche is looking to expand their personalized medicine strategy and they want to insure that the infrastructure (quick and cheap sequencing) is readily available. You may have the best personalized therapy out there, but if physicians can't easily identify the appropriate patients (either because of time or cost or just plain old hassle) you're dead in the water.

However, why would they ACQUIRE a sequencing company? What do you get out of it that you wouldn't get through a joint-venture or other sort of collaboration? Sequencing is quickly becoming a commodity. You either get a quick, cheap and reliable sequence or you don't. And as a biotech company, it would seem that a collaboration would allow you the flexibility to go with whoever has the best technology. An acquisition means you're stuck with whatever technology you just bought.

It would be great if someone could explain the logic to me!

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3. Student on January 27, 2012 10:47 AM writes...

This is [temporatily] how: "To keep Illumina's shareholders from selling their stock to Roche, Illumina is offering a dividend of one preferred stock purchase right for each share of common stock held through Feb. 6, Bloomberg reported."

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4. Chemist Turned Editor on January 27, 2012 11:21 AM writes...

@ Anonymous: Ain't that the truth!

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5. TJMC on January 27, 2012 1:03 PM writes...

Also posted this at Forbes, but that $6B number triggered a deja vu moment that others here may also remember and comment on:

Merck bought Medco nearly 20 years ago for $6B ($9.3B in 2011 dollars) to get an information source that would enhance R&D and marketing focus. A few years later, some thought they hugely overpaid and got distracted.

Similar ILMN arguments echo that thinking, on how fast genome information costs are dropping. Time will tell if this was a Medco moment, or somethings else. What is different? Perhaps the dawn of “Big Data” tools? What do others think?

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6. Anonymous on January 27, 2012 1:19 PM writes...

All, I think you look at this too much from a pharmaceutical perspective: as Derek wrote in his blog, Roche is also a diagnostics company. They already own a sequencing outfit, 454 Life Sciences. 454 has a sequencing technology that offers greater read lenths than Illumina's, but has a higher cost. Ideally, you combine the two to best place those pesky repetitive sequences and gene duplications. If Roche had both technologies, their market position would be stronger.
Also, Illumina stands on two legs, sequencing and SNPs (single nucleotide polymorphisms). Soon, you will be able to seuqence a genome for $1,000 in reagent cost (plus labor, plus depreciation, plus bioinformatics, plus rent would give a relistic price) but SNPs can offer a less detailed genomic characterization at $100 - 400 reagent cost, still cheaper. The SNPs would be attractive to Roche as well, they have applications not only in research and human medicine, but also veterinary medicine and agriculture.

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7. biotechbaumer on January 27, 2012 1:30 PM writes...

ILMN is launching a cheaper, more affordable version of their sequencer called the MiSeq. The key driver of growth in their business now is adoption by hospitals/doctors (even payors) for the MiSeq and what it offers. Roche clearly has a marketing advantage over ILMN in talking to these parties. That's where I see the synergy in this deal. Even if costs are dropping, if the volume outpaces the drop in cost, that's still quite a profitable business...

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8. TJMC on January 27, 2012 3:24 PM writes...

Perhaps the issue is not ever-lower cost per SNP or genome. Perhaps the reason for Roche to buy ILMN is that they are buying a portfolio of patents. Similar parallels in the smartphone/tablet world where costs are going down, so "where is the beef"? Royalty fees? Blocking entry by others? That, with value added services based on disease model knowledge (and the usual diagnostic/therapy pairing) might be the underlying strategy.

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9. newnickname on January 28, 2012 1:25 AM writes...

@5: Merck was the vanguard in that field. Then PCS pharmacy benefit management system was targeted. Bidding started at around $200M. Lilly "won" (like eBay!) and paid $4B. A year later, Lilly took a $2B write down on the acquisition. A year after that, they sold it for $1B. It was sold a few more times (Rite-Aid, etc.) and it finally became a part of Caremark or CVS where it is probably valued at around $200M, right back where it was supposed to be. So what happened to the rest of the $3.8B of "value" that Lilly paid to PCS? I think there are a few rich, happy PCS managers from those days.

@others: I was also going to mention Roche's acquisition of 454 but then you also have to keep an eye on Ion Torrent (part of Life Tech). Life Tech bought Ion Torrent for around $350M (+$350M milestones = $700M). And who or what else is waiting in the wings?

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10. Matthew Herper on January 28, 2012 8:05 AM writes...

@biotechbaumer --

There's no way that MiSeq is the driver of Illumina's business. It continues to be largely composed of the big sequencers. Which is one more threat. What if Illumina doesn't lose much market share, but there is price pressure on these $700,000 machines?

The clinical sequencing I'm hearing about now is mainly using the big Illumina machines or Illumina's service business. There's been some use of Complete, too.

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11. gippgig on January 28, 2012 9:54 PM writes...

Totally off topic but...
Did this slip by everyone?
Predicting Adverse Drug Events Using Pharmacological Network Models
DOI: 10.1126/scitranslmed.3002774

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12. Anonymous on February 5, 2012 7:32 PM writes...

How about "Roche goes hostile against its employees"? The 2011 layoffs will haunt that place moving forward. There are only ca. 1400 employees left on the Nutley site, a site that used to hold 10,000. Given that utility costs have gone up since the late 80's, it's no wonder that buildings are being demolished over there to decrease the foot print.

The problem with Roche (nutley in particular) is that they have a problem distinguishing talent from non-talent. Bias, favoritism, cronyism and narcissism appears to prevail in the selection of "who stays and who goes". If only the Roche management and "the family" knew what was/is going on over there in NJ......

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