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Illumina Inc. Message Board

  • namaste_b namaste_b Jun 25, 2007 1:43 PM Flag

    ValueAct!

    On June 30, 2006 there were 3 huge, virtually simultaneous trades at the last moments of the trading day. Those trades were in ABI, SLXA, and ACXM. At the time ValueAct was the largest shareholder of SLXA (having gotten their shares in a sweetheart secondary financing deal) and the principal of ValueAct was trying to take over ACXM (he did get a board seat). At the time SLXA was at about $7.90/share ($23/share when divided by the 0.344 ILMN/SLXA merger conversion ratio. ABI was at about $32.50/share. Very interestingly, the trades involved 2.1M shares of SLXA (a HUGE trade relative to the normal trading volume) and 0.72M shares of ABI. 0.72M shares divided by 2.1M shares is, interestingly enough, exactly 0.344-the SLXA/ILMN conversion ratio, however the merger wasn't announced until November 13, 2006. Just one month before these trades ABI announced their intended acquisition of the Agencourt next-generation sequencing technology.

    So what? Well, now ValueAct is trying to take ACXM private (announced last week).

    So what? Well, in the last moments of the market last Friday, there were once again some very interesting simultaneous trades, this time in ABI, CRA, ILMN, and ACXM!

    Does ValueAct want to take ABI private, or is ValueAct just buying shares based on some special information? ABI has had an "interim" President since October 20, 2006. What's ILMN got to do with it? As I've said before ABI has licenses to AFFX array patents (and ILMN does not), ILMN has sequencing by ligation patents that ABI needs to do the Agencourt sequencing technology, and since these next-generation sequencing technologies are modular, the parts can be mixed and matched.

    I wonder if it's been ValueAct requesting the US Patent office to review all the old array patents!

    Yea, I think this ABI/ILMN possible litigation around the sequencing by ligation is a total sham.

    I don't really know what this all means, but I suspect it would be wise to buy ILMN, CRA, and ABI and to short AFFX (they are going to be left in the dust!).

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    • I think perhaps you have hit the nail on the head. There are lots of platforms to do molecular diagnostics, (this is very different than clinical diagnostics, of course) and the industry's extreme fragmentation is a reflection of this. Some will win, some will lose, but in any event there are lots of ways so there will be lots of pressure on price. Content? Well, I have never invested in drug companies or pure biotechs because I believe it is extremely difficult to predict the results of even pre-clinical drug development, let alone clinical trials, etc. I suspect there are many others out there that have more information than I do about the impending results. It is a crap shoot I don't want to play. For me I think diagnostic content providers are in a similar situation, except the time and costs to enter, and the potential liabilities for late-discovered errors, are much more favorable for the creator of diagnostics. I'm staying right here. The company has the right size and motion. ABI is too big and bulky. Revolutions are modulated there-because of the bulk. Smaller companies without profits are riskier for all the reasons I'm sure we've all experienced. I sure hope those earnings are sweet!

    • Right, a double in a year is not bad. I expect more than one of those.

    • Thanks for the input gbolt,namaste:

      I had made this point a few months ago on the DCGN board and was re-thinking it again after visiting the AACC (clinical diagnostics) conference in San Diego this past week. It was only a short walk from where I now live. What stuck out to me there (and ILMN was there with their Cyvera tech in a booth) was the huge number of platforms for diagnostics. I was looking for something to differentiate the many different players (Roche, Abbott, ILMN, and on and on) ... the thing that again popped up in my head was content.

      Namaste, gbolt: I invested in DCGN not too long ago (has pretty much stayed at my entrance price) because they were the first to do the huge whole genome association studies with ILMN's tech (and have some content agreements with ILMN ... would have to go re-read news wires to see where).
      DCGN most likely has been racking up IP on genetic markers, more so than what has been publicly released in my opinion (need to file IP before disclosing). It's not difficult to find the variations with large studies but one does need to be first in doing it to secure the IP.

      Do either of you have an opinion on DCGN? I've been posting/reading on this message board for years and respect both of your opinions.

    • You guys are raising some great issues here, thanks! I don't know who the winners in providing content, but it certainly a more fragmented space, and more risky than ILMN. There has been a lot of talk about consolidation in the diagnostic content space as well. If only we knew which ones will be aquired by bigger fish! I worked for Celera (in small-molecule medicinal chemistry) and they shut down that whole operation (wisely) to concentrate on molecular diagnostics. They use Luminex technology, not ILMN, unless things have drastically changed since I was there. They sell their diagnostic products (cystic fibrosis, HIV load, ect.) through Abbott. I have no idea what they're up to now, but their stock (and their sister ABI) has been behaving rather choppy lately. I really think ABI and CRA will separate and there will no longer be a mother ship called Applera. This change could go in conjunction with an acquisition of one or both companies. Of course I would love giant multiples as well as you both would, but I already played that game and lost a bundle on LYNX,SLXA before they matured. You can pick the right horse and still lose if you get in TOO EARLY! So much financing needed and dilution, and reverse splits, etc. Of course the insiders take care of themselves by giving themselves giant option grants that compensate for all that dilution, but the early outsiders can lose big. I'm sticking with ILMN now and will be quite happy with a double in the next year or two. I've got lots of eggs in this basket.

    • Excellent points. You're making me think, and I haven't thought about this fundamentally. The dominant animal stays dominant until the game is finished, and the game has just begun. I've lost alot of opportunity in the past by thinking creatively instead of just staying with the strongest growth and the strongest stocks. It is really very simple. The obvious growth stories are the ones that play out the best. It happens over and over again. AMGN was the quality stock in 1990 in all of biotech. It was in the stock price during the bear market. The best stock on the NASDAQ for the entire year. It was there in their guidance for 1991. And it ran up 60x from there. I believe the market cap was about 1B near the end of 1990, about the same for CSCO as well.

      The tech example: Google et al as content providers vs JDSU etc as bandwidth providers. In that case the bandwidth was a commodity - it's over abundance is what fueled internet growth. Margins imploded. CSCO was their early enough with an architecture that was independent of raw bandwidth.

      ILMN is dominating the SNP and sequencing space. Margins are 35% and revenue growth is over 100% annually. These are very similar to CSCO in 1990. Seems likely that ILMN will continue to dominate these areas and probably be the first commercial power in proteomics - could LMRA, CBMX compete?

      Maybe others will erode ILMN's margins. My guess is they won't.

      I have no idea about 'content' providers. Could ORCH be an example, GHDX, SQNM? I think they are trying to serve niche markets, breast cancer to forensics. Doesn't fit your idea though, because these have their own technology, don't believe they use ILMN machines.

    • gbolt,

      So what you're saying is your big on content in a round about way (diagnostics).

      ILMN is a tool provider with some content agreements. I am
      still big on ILMN but have been moving my monies downstream to the content providers of diagnostics that use ILMN tools.
      ILMN is an easy double from here the next year or two but what I want is more multiples (and with it more risk).

      Who do you see as the big content providers for diagnostics in the future? To use an tech example, after the internet bubble it was the content providers such as google, yahoo, you tube, myspace, etc. that flourished (the bandwidth providers didn't fair as well). How do you think this personalized medicine dream will play out? Who will be the really big winners, the tool makers or the content providers?

    • If I ran an insurance company I would want to know the medical risks of my policy holders. The knowledge is valuable, and wouldn't it become more valuable as the effects of genetic origin of disease is more fully understood in all of it's permutations during the next decade?

    • gbolt-If you have a health insurance company that you think would pay $10,000 for you to get your whole genome sequenced then you are one lucky fellow! I rather doubt any insurance company I've ever dealt with would do that. Nonetheless, I do agree that the coming of personalized medicine is a certainty and that ILMN is nicely positioned in both SNP technology and whole-genome sequencing (at least for the research market). I am a bit concerned about the behemoths ABI and GE Healthcare, but not concerned enough to sell any of my shares. I do wonder if ILMN is positioned well enough for molecular diagnostics.

    • Thank you sir.

      I haven't had enough time or understanding to read through all of the posts on this thread. Somebody wrote correctly that it is not clear what the path would be to personal and universal analysis.

      But we know it will happen. I just think back to other technologies, and INTC in particular. I imagine Intel brass was conservative about the potential in the 60's and 70's. And I know that personal medicine will be bigger than personal computers. Not everybody will own a sequencer. But everybody will spend money to understand their medical risk, and more than they would spend on computers - so the price need not drop to $1000, saturation seems very possible at 10 times the price.

    • gbolt-if you are into chemistry and optical materials you should check out Pacific Biosciences, a private company in Menlo Park, CA that is working on way next-generation sequencing technology using wave guides. I hoped to work for them a year or so ago but it didn't work out (thanks Hunk!). They are doing some very interesting work that you might be interested in applying your skills to.

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