Slide 1: Roche's Offer to Acquire Illumina Presentation to Investors
Roche's Offer to Acquire Illumina Presentation to Investors March 2012
Slide 2: Forward-looking statements
This presentation contains certain forward-looking statements. These forward-looking statements may be identified by words such as 'believes', 'expects', 'anticipates', 'projects', 'intends', 'should', 'seeks', 'estimates', 'future' or similar expressions or by discussion of, among other things, str
Slide 3: Agenda
Executive Summary Offer Summary Illumina Growth Perspectives Illumina Share Price Perspectives Offer Price Rationale Next Steps Conclusion 3
Slide 4: Executive Summary
Executive Summary Roche is increasing its all-cash offer to acquire Illumina to $51.00 per share. [] Offer is highly attractive, representing both full and fair value as well as value certainty -- Implies 1-day and 1-month average premiums to the unaffected price of 88% and 84%, respectively and LTM
Slide 5: Executive Summary (Cont'd)
Executive Summary (Cont'd) Roche is increasing its all-cash offer to acquire Illumina to $51.00 per share. [] Illumina has continually emphasized significant growth opportunities for sequencing in clinical settings as well as industrial end markets -- However, no detail has been provided as to how I
Slide 6: Executive Summary
Executive Summary Offer Summary Illumina Growth Perspectives Illumina Share Price Perspectives Offer Price Rationale Next Steps Conclusion 6
Slide 7: Notable Recent Events for Illumina
Notable Recent Events for Illumina Over the past year, Illumina has underperformed its peers and the broader market. [] Illumina's stock dropped as much as 60% from its 52-week high because of several factors, including: -- Twice-lowered revenue guidance after a drop in orders due to the constrained
Slide 8: Illumina's Business Faces Significant Challenges
Illumina's Business Faces Significant Challenges [] All-cash offer transfers 100% of risk from Illumina's shareholders to Roche [] Maturing market and unsettled global economic conditions imply reduced growth prospects [] Uncertainty around longer-term outlook for genetic funding by NIH and other U.
Slide 9: Roche is Best Positioned to Overcome these Identified Challenges
However, Roche is Best Positioned to Overcome these Identified Challenges Roche's global reach and expertise in diagnostics will allow Roche to reinvigorate Illumina's growth in ways unattainable as a standalone company. [] Roche is better positioned to make the type of investments that are required
Slide 10: Offer Summary
Offer Summary Roche's all-cash offer of $51.00 per share is highly attractive, providing full and certain value to Illumina's shareholders. Consideration [] $51.00 per share, all-cash Unaffected Price [] $27.17 on 12/21/2011 Premium [] 88% to unaffected 1-day (1) [] 84% to unaffected 1-month average
Slide 11: Key Events
Key Events Event Date Record Date [] March 8, 2012 ---------------------------------------------- ----------------- ---- Illumina's Annual Shareholder Meeting [] April 18, 2012 ---------------------------------------------- ----------------- ---- Expiration of Roche's Tender Offer [] April 20, 2012
Slide 12: Situation Overview
Situation Overview After multiple attempts to engage with Illumina were rebuffed, Roche has taken its offer directly to Illumina's shareholders. [] On November 1, 2011, a member of Roche's Board spoke with Illumina's Chairman and expressed Roche's interest in Illumina and requested a meeting. Illumi
Slide 13: Illumina Growth Perspectives
Executive Summary Offer Summary Illumina Growth Perspectives Illumina Share Price Perspectives Offer Price Rationale Next Steps Conclusion 13
Slide 14: Heightened Competition Increases Uncertainty of Illumina's Growth Prospects
Heightened Competition Increases Uncertainty of Illumina's Growth Prospects Oxford Nanopore [] On February 17, 2012, Oxford Nanopore unveiled high performance electronic sequencing devices GridION and MinION [] MinION System, a disposable DNA sequencing device the size of a USB memory stick, is expe
Slide 15: Gene Sequencing Market Continues to Mature
Gene Sequencing Market Continues to Mature Illumina's statements around its substantial near term growth opportunities are not consistent with the views of the broader equity research community. [] Technological innovation continues to put pressure on pricing [] Growth prospects have weakened, as ma
Slide 16: Diminishing Illumina Growth Prospects
Diminishing Illumina Growth Prospects Lowest growth guidance ever provided by Illumina management despite the disappointing 2011 results, which provided a lower base for year-over-year comparison in 2012. Illumina Management Guidance Revenue 39.5% Lowest level of 23.0% 20.0% 20. 0% guidance provided
Slide 17: Illumina Share Price Perspectives
Executive Summary Offer Summary Illumina Growth Perspectives Illumina Share Price Perspectives Offer Price Rationale Next Steps Conclusion 17
Slide 18: Illumina's Share Price Has Underperformed Peers
Illumina's Share Price Has Underperformed Peers Over the past 3-years, Illumina has underperformed its peers and the broader market. Indexed Price Performance From January 2009 -- January 2012 300.0% Recent Management Performance [] Missed quarterly earnings twice in 2011 250.0% [] Suspended forward
Slide 19: Share Price Decline Driven by Diminishing Growth Prospects
Illumina Share Price Decline Driven by Diminishing Growth Prospects Illumina Share Price Post Earnings Release (1) $70.65 $69.44 $57.33 52.5% decline in stock price $33.01 $30.80 ---------- ------ ------ -------- ------------------- Q4'10 Q1'11 Q2'11 Q3'11 Pre-Ann.(2) Illumina 2-Year Forward Growth
Slide 20: Illumina Valuation Over Time
Illumina Valuation Over Time Until recently, Illumina's projected revenue and net income growth were well above its peer average. As this gap in growth between Illumina and its peers has closed, the gap in valuation between them has narrowed. Share Price Performance From January 2009 -- January 2012
Slide 21: Illumina Rolling NTM P/E/G Analysis
Illumina Rolling NTM P/E/G Analysis Roche's offer implies a price-to-earnings-growth ratio that is a 16% premium to Illumina's three-year high and well above its three-year average. 2.25x Offer: 2.06x 2.00x Initial Public Offer: 1.75x 45% Premium 1.75x to three-year NTM P/E/G average 1.50x Pre-Offer
Slide 22: Absent Roche's Offer, Illumina Would Likely be Trading at Much Lower Levels
Absent Roche's Offer, Illumina Would Likely be Trading at Much Lower Levels P/E/G Adj. Price 3-Year Avg. Forward P/E/G 1.42x Current LT Consensus Growth Rate 16.6% ======= Implied Forward P/E 23.6x 2012E EPS Guidance (1) $1.45 =================================== ======= P/E/G Adj. Price $34.20 $60.0
Slide 23: Absent Roche's Offer, Trading at Lower Levels (Cont'd)
Absent Roche's Offer, Illumina Would Likely be Trading at Much Lower Levels (Cont'd) Estimated Unaffected Price [] Starting point is Illumina's unaffected stock price as of 12/21 close ($27.17) (1) [] From 12/22 to 1/9, Illumina increases or decreases by the same percentage each day as its peer inde
Slide 24: Absent Roche's Offer, Trading at Lower Levels (Cont'd)
Absent Roche's Offer, Illumina Would Likely be Trading at Much Lower Levels (Cont'd) P/E Adj. Price [] Starting point is Illumina's P/E multiple as of 12/21 (17.8x), which represents a premium of 4.8x compared to the peer median of 13.0x (1) [] From 12/22 to 1/9, Illumina's multiple is assumed to be
Slide 25: Illumina 2012 Guidance in Line with Pre-JPM Consensus Estimates
Illumina 2012 Guidance in Line with Pre-JPM Healthcare Conference Consensus Estimates [] Illumina's pre-announcement of earnings and signal on 2012 guidance had minimal impact on analysts' price targets [] Pre-JPM Healthcare Conference, the median Illumina price target was $32 Pre-JPM Conference Met
Slide 26: Analyst Observations
Analyst Observations "What is debatable is Illumina's growth potential over the next 2-3 years (investment time horizon for the majority of the shareholders, in our view), which we estimate is significantly below market projections when shares were trading at >$70/share, as well as Illumina's potent
Slide 27: Illumina's Actions Suggest Bearish View of Stock Price
Illumina's Actions Suggest Bearish View of Stock Price [] Throughout the first half of 2011, Illumina repurchased stock in the $60's and $70's [] However, after suspending forward guidance and highlighting a pull-back in academic research spending, Illumina ceased its share repurchases [] Most recen
Slide 28: Illumina's Actions Suggest Bearish View of Stock Price (Cont'd)
Illumina's Actions Suggest Bearish View of Stock Price (Cont'd) [] When Illumina repurchased its 2014 convertible debt and unwound the corresponding bond hedge (Illumina's right to purchase 18.3mm Illumina shares at $21.83), Illumina did not retire warrants related to the convertible bond call sprea
Slide 29: Offer Price Rationale
Executive Summary Offer Summary Illumina Growth Perspectives Illumina Share Price Perspectives Offer Price Rationale Next Steps Conclusion 29
Slide 30: Offer Multiples Above All Peers
Offer Multiples Above All Peers Roche's offer values Illumina well above any of its peers based upon a P/E multiple. Even after adjusting for growth, the P/E/G multiple is well above the peer median P/E/G. 2012E P/E 34.2x 29.6x 25.3x 20.5x 20.3x 18.6x 18.4x 18.2x 18.0x 16.5x 16.4x Median: 16.4x ----
Slide 31: Offer Multiples Above Precedents
Offer Multiples Above Precedents Roche's offer is at the high end of valuation multiples paid in recent precedent life science tools transactions. Enterprise Value / LTM Revenue 7.0x 6.5x 6.0x 5.6x 4.9x 5.0x 4.3x 4.0x 3.3x Median: 3.3x ---------------------- ------------------- ---------------------
Slide 32: Offer Premiums Above Precedent Transactions
Offer Premiums Above Precedent Transactions Unaffected Premiums 1 Day Premiums Roche's Offer 88% ($51.00/share) Roche's 1/24 Offer 64% ($44.50/share) Merck KGaA / Millipore 50% 02/28/10 MDS / Molecular 49% 01/29/07 Illumina / Solexa 44% 11/13/06 Agilent / Varian 33% 07/27/09 Thermo Fisher / Median:
Slide 33: Next Steps
Executive Summary Offer Summary Illumina Growth Perspectives Illumina Share Price Perspectives Offer Price Rationale Next Steps Conclusion
Slide 34: Pro-Shareholder Governance Proposals
Pro-Shareholder Governance Proposals Roche's proposals place control of Illumina with its own shareholders. Roche's Proposals Rationale for Proposals [] Fill the four directorships up for election with Roche's nominees [] Elect highly qualified, independent directors to the Board [] Fill the two new
Slide 35: Independent, Qualified Director Nominees
Independent, Qualified Director Nominees These independent nominees are exceptionally qualified to serve in the best interest of Illumina shareholders. Nominees for Existing Board Seats (1) Bary Bailey -- Age 53 -- President of 4B Management LLC -- Operating Partner at Cressey and Company -- Former
Slide 36: Independent, Qualified Director Nominees
Independent, Qualified Director Nominees These independent nominees will serve in the best interest of Illumina shareholders and are not beholden to Roche. [] Roche's independent nominees are distinguished executives and academics with substantial prior board experience and pristine reputations [] I
Slide 37: Conclusion
Executive Summary Offer Summary Illumina Growth Perspectives Illumina Share Price Perspectives Offer Price Rationale Next Steps Conclusion 37
Slide 38: Roche's Offer Represents Value Certainty Amidst Significant Headwinds
Roche's Offer Represents Value Certainty Amidst Significant Headwinds [] $51.00 all-cash offer provides attractive value today for Illumina shareholders -- Roche to hold all risk related to increasing competitive pressures and tightening fiscal policy related to government funding -- Removes executi
Slide 39: Appendix
Appendix 39
Slide 40: Key Claims
Key Claims Key Claims Made by Illumina to its Shareholders Roche's Rationale for Illumina Shareholders [] Illumina and its industry as a whole have substantial growth [] Due to worldwide economic constraints and Illumina's sales opportunities dependency on public research institutions, analysts have
Slide 41: Summary Evaluation of Offer Price
Summary Evaluation of Offer Price [] Higher cash value relative to Illumina's unaffected share price, particularly in a period of market uncertainty -- Implies 1-day, 1-week and 1-month average premiums of 88%, 90% and 84%, respectively (1) -- Since 2006, similar life sciences tools industry transac
Slide 42: Additional Information and Where to Find It
ADDITIONAL INFORMATION AND WHERE TO FIND IT THESE MATERIALS ARE FOR INFORMATIONAL PURPOSES ONLY AND DO NOT CONSTITUTE AN OFFER TO PURCHASE OR A SOLICITATION OF AN OFFER TO SELL ILLUMINA COMMON STOCK. THE TENDER OFFER IS BEING MADE PURSUANT TO A TENDER OFFER STATEMENT ON SCHEDULE TO (INCLUDING THE OF
Slide 43: We Innovate Healthcare
We Innovate Healthcare 43