Thursday, February 9, 2012

Bolt-ons, Buy-outs and Buying In

A few weeks ago, Illumina announced that it has received a hostile bid from Roche to purchase it—lock, stock and assays. This announcement kicked off a flurry of musings as to whether this was yet another sign that 2012 will be a year of mergers and acquisitions, following the big purchase of Inhibitex by Bristol-Myers Squibb for $2.5 billion in early January. Since the initial news on January 25, the Illumina/Roche process has moved on via dueling releases and statements in a play we have seen before. (Sanofi’s eventually successful acquisition of Genzyme in early 2011 comes to mind.) Yesterday, Illumina said that the $44.50 pershare that Roche was offering did not reflect an appropriate value. (Analysts have said that Illumina is looking for $69 per share.) As this dance continues, there is little doubt in my mind that Roche will, in the end, be successful. The question is whether they will overpay.

What is not a question is the fit. Illumina could neatly fit into Roche’s personal medicine and diagnostics groups and likely add immediate value. Roche sees this as a shortcut to their goal of defining and leading the personalized medicine field. The company has oft stated its focus in cancer, especially targeted therapeutics and diagnostics. Illumina arguably has this expertise. This is could be a good thing for Illumina as well. They lagged a bit in 2011, with disappointing earnings in the Q3:11 bringing lay-offs.Pressure remains somehwhat as fears about NIH cuts remain.   However, they are making a comeback now at a time when sequencing is hitting the $1,000 mark—an important threshold in the biomarker and sequencing games.

This potential acquisition also highlights key trends in the life sciences industry. Rather than buy a company that has bits and pieces that might fit and chucking the rest, the bolt-on acquisition is winning fans in big pharma CEOs. The bolt-on simply means acquiring a company that fits neatly into existing structure and pipeline. It is often cheaper than the mega-mergers of yesteryear and, perhaps, a bit easier in transition. Another trend highlighted is that of big pharma filling in pipelines and working towards goals via acquisition, as they continue to adjust to the era of restructured outfits, R&D reviews and patent cliffs.

In the end, it remains up for debate whether this is a year of M&A fever in life sciences. (I am less than convinced.) After all, consolidation is not the only solution. However, I do think bolt-ons are going to continue to be popular this year. They make sense for both sides of the equation in many ways.

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