Can Roche make $5.7B Illumina bid pay off?

No doubt about it, Roche ($RHHBY) is determined to dominate in personalized medicine. From the moment he took over as CEO in 2008, Severin Schwan (photo) has been touting targeted drugs and diagnostics as the twin engines of growth. Using genetics to find the right drugs for the right patients won't just make treatments more effective, Schwan figures--it will make Roche a more effective company.

So, it's no surprise Roche has been building up its diagnostics business with one acquisition after another. And the fact that Schwan has now agreed to pay $5.7 billion for the gene-sequencing company Illumina fits right in with that pattern. Illumina has more than half the market for the current generation of high-speed sequencing machines, The New York Times points out, at a time when sequencing is gaining more traction in the clinic, not just the research lab.

But as Forbes reports, buying Illumina might not have been necessary for Roche had the company properly handled its 2007 integration of 454 Life Sciences. That sequencing company, bought for $155 million, had Jonathan Rothberg at the helm. Roche either let him slip away or ran him off, depending upon how kindly one interprets events. Rothberg went on to build up Ion Torrent, sold in 2010 to Life Technologies--which now makes a DNA sequencer that costs a fraction of the amount of Illumina's, and it's planning to turn out a $150,000 machine that can sequence an entire human genome in one day for just $1,000, Forbes notes.

Illumina's costlier machines are more powerful, and Forbes points out they have a better track record. If Roche's hostile bid succeeds, then it will have to follow through to keep that edge; the jostling for share in the sequencing market has just begun. Beyond that, Roche will need to leverage the technology into better drugs and diagnostic tests. That's an even longer-term project. You can be sure Schwan will be cracking his personalized medicine whip along the way.

- read the NYT piece
- check out Forbes' take
- get more from The Wall Street Journal