Roche finds the right genes

Herbert Boyer, founder of Genentech and effectively the biotech industry, drily noted at the IBF conference earlier in the month that "the Swiss know how to make money" and in the world of how to sequence human and animal genomes this appears to be true.

Switzerland-based drugs company Hoffmann-La Roche acquired Genentech in 2009 in a $46.8bn deal – one that Boyer thought was still $15 per share less than full value. Roche had previously made money from Genentech by buying the business from its venture capital backers using a call option in 1999 before refloating part of the shares over the next 12 or so months.

But it is in the brave new world of DNA sequencing that Roche is being most active through potential acquisitions and its corporate venturing unit.

The most obvious example is Roche’s $44.50 per share tender off for US-listed Illumina valuing the company at $5.7bn – the offer has been rejected and the target’s shares are trading higher possibly in expectation of a revised offer.

Illumina said it had 60% of the next-generation DNA sequencing market but it also has a minority stake in UK-based peer Oxford Nanopore Technologies, formerly known as Oxford NanoLabs, which was spun out of Oxford University in 2005 and last week unveiled its miniature DNA sequencer, small enough to fit in the hand and expected to cost less than $900 each. (The University’s tech transfer office retained 5.3% when Oxford NanoLabs was spun out with UK-listed academia commercialisation fund IP Group – then known as IP2IPO Group – holding another 44.3% – see more on this topic at our sister site of Global University Venturing.)

In rejecting Roche, Jay Flatley, executive president of Illumina, which had been boosted by its earlier acquisition of Solexa in 2007, said: "Our industry is nascent, with the promise and potential to experience extraordinary growth in the years ahead as genetic information becomes broadly applied beyond molecular biology research, and into medical diagnostics, reproductive health and cancer management."

Roche’s Venture Fund has backed a wide range of healthcare technology-based businesses, including personal DNA tester 23andMe and Sensors for Medicine.

Gene sequencing and testing also reflects one of the most exciting sectors for cross-over developments as different types of investors and companies from other fields using the current disruption as a chance to enter the market.

In September, NabSys, a US-based gene-sequencing company, raised $10m in its series C round led by return investor Stata Venture Partners, the venture capital firm founded by chip maker Analog Devices co-founder and chairman Ray Stata, who said: "NabSys represents the merger of two industries which, until now, have been quite disparate: semiconductors and genomics."

And if Roche is successful with its Illumina takeover it will boost its position built by its Roche Applied Science division that had in 2007 acquired NimbleGen Systems, whose last chief executive pre-acquisition, Stan Rose, last month joined peer NabSys as commercial officer.

But competition between Roche, Illumina, Oxford Nanopore (and peers Life Technologies, Complete Genomics and Pacific Biosciences – the last two floated in May and October respectively) is also a battle between which investor types offer the most long-term support.

In an interview with news provider Financial Times, Gordon Sanghera, chief executive of Oxford Nanopore, said: "My management team came into this because we wanted to deliver a strong, independent British technology company.

"Our shareholder register does not include any venture capital funds that might be looking for a quick exit. We have only long-term investors [such as IP Group and mutual fund manager Invesco Perpetual]."

In 2008, John Milton and Clive Brown joined Oxford Nanopore from Solexa after the VC firms (including Abingworth Management, Amadeus Capital Partners, Oxford Bioscience Partners and SV Life Sciences) sold out to Illumina.

But up against public and private companies are government-funded and non-profit organisations, such as BGI (formerly known as Beijing Genomics Institute) in China and the US’s National Human Genome Research Institute.

There is no question cheaper and quicker sequencing of the DNA underpinning life will transform our world. The World Economic Forum’s list of top technologies for this year includes personalised medicine, nutrition and disease prevention, as well as the informatics to process the volume of information to create synthetic biological systems. (See the forthcoming March issue of Global Corporate Venturing for the full list.)

It is an area of regionally diverse and cross-sectoral innovation where corporate venturing fits within other elements of the business development toolkit and in competition and partnership with other investor types to create value and warn of potential threats.