CORRECT: Roche Steps Up Courtship In Illumina Bid

Date : 04/12/2012 @ 10:06AM
Source : Dow Jones News
Stock : Illumina, Inc. (MM) (ILMN)
Quote : 204.95  0.0 (0.00%) @ 6:58AM

CORRECT: Roche Steps Up Courtship In Illumina Bid

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ZURICH (Dow Jones)--Roche Holding AG (ROG.VX) Thursday stepped up its courtship of U.S. gene-sequencing company Illumina, again hinting the Swiss company might find extra value in the reluctant target if Illumina agrees to begin takeover talks.

The world's largest maker of cancer drugs is offering $51 per Illumina share, valuing the target at more than $6.5 billion. But the San Diego-based company has repeatedly rejected Roche's overtures as being too low, while describing its own growth prospects as "extraordinary."

In its latest move to woe Illumina, the Swiss pharmaceutical giant Thursday said it "would consider any information supporting Illumina's contention that our offer undervalues the company and its prospects," should the diagnostics firm agree to start negotiations.

But Roche repeated that its current hostile bid is "full, fair and extremely attractive," and "more than adequate" and questioned Illumina's strong growth projections.

"Illumina hasn't to date provided any quantitative support for their aggressive growth assumptions," Roche Chief Executive Severin Schwan said in a statement Thursday. "We believe that their long term growth expectations are unrealistic and ignore the inherent and significant market and technology risks."

Roche launched its hostile takeover in late January in an effort to expand its offering of personalized medicines, a booming field in health care in which some of the world's biggest pharmaceutical companies are vying to tailor treatments to patients' unique makeups by using diagnostic tests.

The Swiss drug maker last Friday said it remains willing to consider "additional value if given the opportunity to enter discussions and perform due diligence." Its reiterated stance on Thursday might signal that the company is focusing its strategy on increasing pressure on Illumina's board, analysts say.

"Roche is dangling a carrot in front of Illumina's face as the only way for the U.S. company to get to a higher offer," said Zurich-based analyst David Kaegi with Bank Sarasin, who has a buy rating on Roche. "It's one more step in the takeover dance, and everybody assumes they will succeed. There's always a risk, but they know what they're doing."

Roche is trying to wrestle control of Illumina's board by putting forward a slate of directors for election at the U.S. company's upcoming AGM on April 18.

In a media call Thursday, Roche's CEO declined to say what Roche would do should it fail to gain control at the Illumina meeting in New York next week.

"Whatever the outcome, we will take it from there," Schwan said, adding that Roche would look at other options should the bid fail.

"Illumina and Roche would be a very good fit and it makes a lot of sense to combine their capabilities," and bring gene-sequencing to the next level, Schwan said.

The Swiss drug maker, which raised its offer from an initial $44.50, confirmed it has had talks with various Illumina shareholders, and said Thursday there was no change in the number of Illumina shares it already owns.

In a letter to the U.S. company's shareholders on Wednesday, Roche mocked Illumina for recently saying that it has been called "the Apple of the genomics business."

"There is one glaring difference between Illumina and Apple -- Illumina's MiSeq and HiSeq are not the iPhone and the iPad," Roche wrote, saying Illumina's products serve a much smaller and highly regulated market compared with Apple's (AAPL) products.

An Illumina spokesperson was not immediately available Thursday to comment on the takeover drama's latest developments.

Illumina's fierce defense has gained support recently from three proxy advisors -- Glass Lewis, ISS and Egan-Jones -- which sided with the U.S. company, recommending that its shareholders reject Roche's proposed candidates for the board. Some Illumina shareholders also have said Roche would have to further boost its offer to between $56 and $60 a share to quickly clinch a deal.

Roche's bid for Illumina remains the main focus for the market, as the Swiss pharmaceutical giant posted in-line first-quarter sales on Thursday, despite a strong Swiss franc and price pressure in Europe. Roche said sales in the year's first three months dropped 1% to 11.03 billion Swiss francs ($11.9 billion) from CHF11.12 billion a year earlier, slightly below analysts' forecasts for revenue of CHF11.10 billion. At constant exchange rates, sales rose 2%.

Sales of cancer drug Avastin, which rose 1% to CHF1.38 billion, is good news, but that had also been expected, analysts said. Avastin's growth was mainly driven by increased use in lung and colon cancer, Roche said, despite having suffered a setback when the U.S. regulator revoked its permission to sell the drug as breast cancer treatment. Roche's pharmaceutical division's chief operating officer Pascal Soriot has projected peak global Avastin sales of CHF7 billion, fueled by emerging markets and a new indication for ovarian cancer in Europe approved at the end of 2011.

Sales growth was also boosted by its cancer drug Rituxan -- which remains its best-selling drug even as it moves closer to losing patent protection in Europe in 2014 and in the U.S. in 2018 -- and its Hepatitis C drug Pegasys and cancer drugs Herceptin and Xeloda. Eye drug Lucentis also showed resilience to increased competition, while rheumatoid arthritis treatment Actemra sales rose 46% on approvals in additional countries and increasing acceptance among rheumatologists, Roche said.

While pricing pressure hurt pharmaceutical sales in western Europe, which fell 4%, the U.S. market was the greatest contributor to growth, up 6%.

The Swiss company also reported five late-stage clinical trials with positive results in the first quarter, including data comparing trastuzumab emtansine, or T-DM1, to a rival product from GlaxoSmithKline PLC (GSK) for certain types of breast cancer, which is paving the way to file the potential blockbuster drug for approval in Europe and the U.S. later this year.

"Roche has a low exposure to patent expiration and a burgeoning pipeline," noted Zurich-based analyst Andrew Weiss at Vontobel, who has a buy rating on Roche.

The company also confirmed its full-year outlook, but provided no details on profit, which it reports only every six months.

It said sales are expected to grow at low to mid-single-digit rates at constant exchange rates, while it aims for high single-digit increase in core earnings.

At 1104 GMT Roche shares were trading 1.3% higher at CHF156.30. Illumina shares closed at $52.57 on Wednesday.

-By Marta Falconi, Dow Jones Newswires; +41 43 443 8043;

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