What’s Next for Illumina After Roche Deal Falls Through?

Shares of Illumina (NASDAQ:ILMN) were off as much as 10 percent on Monday morning before losses settled to about 6 percent in the early afternoon. Investors are pulling back after Roche Holding chairman Franz Humer confirmed that Illumina is “definitely off the table” as an acquisition target.

Roche is a Swiss company that operates in pharmaceuticals and diagnostics worldwide. Illumina develops and manufactures DNA sequencing machines that are used to diagnose rare diseases and genetic conditions. Illumina, relatively small with a market cap of about $6.3 billion, was a natural target for Roche, which has a market cap of about $174 billion.

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Early in 2012, Roche announced its offer to acquire all outstanding shares at $44.50 a piece. The stock shot up as high as $55 on the news, but stakeholders held out for a better deal. Roche conceded, and in early April bumped its offer price to $51 per share, at that point only about 30 cents below its trading price.

But Illumina’s board rejected the offer and shares began a slide to recent lows in June of under $40 per share. Shares began to trek up after the company raised its full-year fiscal 2012 EPS guidance by ten cents to between $1.50 and $1.60.

Illumina, Inc. Stock Chart - ILMN Interactive Chart - Yahoo! Finance

What’s next?

Analyst see limited upside on this stock. The mean target of 17 brokers is $53.53, lower than its closing price on Friday. On January 3, Wedbush downgraded the stock from “Outperform” to “Neutral,” and a majority of analysts who monitor the stock maintain a “Hold” rating.

The stock has enjoyed fairly consistent upward momentum since June, but if the analyst price ceiling is correct, the news that Roche is no longer interested could cause the stock to flat-line. Illumina will post its fourth-quarter earnings on February 6, and analysts are expecting the company to come in at the high-end of its 2012 EPS guidance. If it misses expectations, a negative market reaction could be amplified by the absence of an offer from Roche.

Although competitors like Life Technologies (NASDAQ:LIFE) and Luminex (NASDAQ:LMNX) didn’t weather 2012 as well as Illumina did, they appear to have hit 2013 running. The smaller life sciences and diagnostics companies could find themselves the focus of an acquisition-hungry Roche.

2 Illumina, Inc. Stock Chart - ILMN Interactive Chart - Yahoo! Finance

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