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Roche Caves on $6.7 Billion Illumina Offer (Update 1)

Stocks in this article: ILMNLIFEJNJGS

The shares of Illumina and competitor genetic research machinery makers like Life Technologies (LIFE) have been bolstered by high expectations for new equipment that can bring cancer research directly to patient treatments. Illumina is currently developing machinery to sequence human genomes in a day, bringing down the time horizon from weeks and even months, which should also lower costs.

In bidding for Illumina, Roche would acquire the leading sequencing specialist, which would also help the company's own drug research and development efforts. Currently Illumina has an over 50% market share in sequencing machinery, as the technology becomes a part of cancer patient treatment, in addition to medical research.

Still, there are risks to an acquisition.

Illumina shares were more than halved at points in 2011, as the continuation of research grants from large scale government funded efforts like the National Institute of Health came into question. The NIH and similar organizations account for a large portion of Illumina's customers, until it can market new machinery directly to hospitals and patients.

Earlier in the week, Columbia University filed a lawsuit against Illumina for alleged patent infringement five DNA sequencing patents that are material to the company's next-generation sequencing products.

The company earned 9 cents a share in its fourth quarter earnings on Jan. 31, missing estimates compiled by Zacks. In its previous two quarters, Illumina also missed Zacks consensus earnings estimates.

At a new bid price of roughly $6.7 billion, Roche's offer for Illumina represents the second largest U.S. targeted deal, according to data compiled by Bloomberg. That data shows that overall merger activity fell 14% this quarter from the fourth quarter of 2011, putting deals at the lowest level in 2.5 years.

For more on how deal and trading volumes may impact Wall Street earnings, see why there is a widening investment bank performance gap.

Goldman Sachs and Bank of America Merrill Lynch are acting as financial advisers to Illumina. Greenhill and Citigroup are Roche's financial advisers to Roche.

-- Written by Antoine Gara in New York

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