Illumina is the dominant player in the high-speed gene sequencing business, and has been for a number of years. That powerful position in a field that’s vital to the future of healthcare has made it the object of intense scrutiny, and in some cases, scorn, from customers, competitors, and potential acquirers.
Last year, the big event came when the San Diego-based instrument maker (NASDAQ: [[ticker:ILMN]]) fought off a $6.7 billion hostile takeover bid from Switzerland-based Roche, saying in essence that it could be a lot more valuable on its own. Many of its actions since could be interpreted as the moves of a hunter, not a company that sees itself as prey.
After the dust settled last spring in the Roche takeover battle, Illumina bought a couple of diagnostics companies, BlueGnome and Verinata Health, to follow through on its stated plan to morph into a more diversified maker of research tools and genomic diagnostic tests. The company has been racing to fend off rivals in the sequencing business like Carlsbad, CA-based Life Technologies (NASDAQ: [[ticker:LIFE]]), and smaller players such as U.K.-based Oxford Nanopore that pose technological threats to its platform for DNA sequencing. Illumina has ruffled more than a few feathers in the industry with some aggressive moves, including an unsuccessful bid to stop BGI-Shenzhen from acquiring Mountain View, CA-based Complete Genomics (NASDAQ: [[ticker:GNOM]]).
I met with Illumina CEO Jay Flatley to discuss all of these issues and more during a wide-ranging interview last Tuesday (January 8th) at the JP Morgan Healthcare Conference in San Francisco. Here are excerpts of the conversation, edited for length and clarity.
Xconomy: You have been one of the busiest newsmakers in the industry lately. You bought Verinata Health, then another company, Moleculo, a spinout from Stanford University. You pre-announced fourth quarter revenues of $309 million that were higher than consensus expectations on Wall Street. You reportedly said no to another recent acquisition inquiry from Roche. What else is up your sleeve for this year?
Jay Flatley: We have a lot going on, we’re busy fellows. We have a pretty rich pipeline of opportunities that come our way now, because of the size we are and the presence we have in the market. We get to look at lots of different companies. It’s driven in part by the challenges in the life sciences venture capital industry. Some are getting out of the business. Sometimes small companies get to the first step in development, and they are looking for strategic partners, or for somebody to buy them out. So we get to look at a lot of things. We don’t do that many. We do a handful of tuck-ins per year, and occasionally a big one like Verinata.
X: How has your strategy around acquisitions changed after the whole Roche thing ended last spring? Do you see yourselves increasingly as the acquirer, rather than the acquired?
JF: Our M&A strategy changed a bit a few years ago, and Roche didn’t particularly influence any change. We used to be more opportunistic—if something came to us and looked interesting, we’d look at it. Now we’re much more proactive. We have a full-time staff that does nothing but this, scouring the States and the world for good licensing opportunities, or good companies that we think we ought to own.
X: What kinds of things are you most interested in now? Diagnostic companies, or new technologies to build up the platform?
JF: It spans a wide range. We’re clearly looking at diagnostics, we’ve been very public about that the past couple of years. We’re looking for something to really enhance our penetration in diagnostics, more rapidly than we could organically. Verinata certainly does that. We’ve looked across the entire space. There frankly aren’t that many high-quality assets that can move the needle for us, and we think Verinata can.
We’re always looking for good technology pieces, and Moleculo is a great example. It’s a company that’s young and small, but they have a great technology that will help inch our product line forward in some interesting ways. We are always looking for interesting assay methods out there. Software is an area we have been looking.
X: Do you worry about how getting aggressive in M&A might backfire? There has been some commentary made about you guys moving to compete against Sequenom (NASDAQ: [[ticker:SQNM]]) in the prenatal genetic testing market. These guys, I believe, are your No. 1 customer.
JF: They are a very important customer to us. The goal
