- The financial uncertainty and buyout drama has already had a negative impact on Complete Genomics’ core business, as stated in their recent 10-q report for the quarter ended September 30, 2012.
- Illumina wants to acquire the GNOM technology off the scrap heap at bargain basement prices – and I question whether they care to propagate the LTR technology at all vs. simply vanquishing another competitor. They have already admitted a desire to sue GNOM out of existence based on intellectual property claims, and they actually made a take-under bid proposal during the GNOM strategic alternatives auction.
- The dire financial condition of GNOM cannot be over-stated. They are essentially at negative net cash and had to get an exception to their debt covenants to allow the bridge convertible financing associated with the BGI takeover. If the BGI deal falls though without an alternative (ILMN or otherwise), bankruptcy is a real possibility.
- GNOM shareholders only win if the board takes the ILMN offer (or a sweetened BGI price) before the BGI deal falls apart. If the GNOM board stands by their rejection of the ILMN bid and the BGI deal goes south, GNOM shares will fall substantially. ILMN would likely then come in with a new bid at a price well below $3.15 and GNOM would have little choice but to accept it.
- A (somewhat) separate risk is around the company’s efforts to obtain CLIA certification to facilitate expansion into the all-important clinical sequencing market. We are long past the timeline when the company stated they should have approval, and we have heard nothing. I can think of no reason for the company to withhold positive news on this front – not to mention it is difficult to claim that such news is not material company information requiring disclosure. So I would presume there has been some delay on that front.
- Finally, I just can’t see ILMN and BGI getting into a bidding war over these Complete Genomics assets, as scientifically advanced as they might be. The technology, market, competition, and cash investment required to achieve profitability have not changed materially since Jefferies conducted the wide-ranging bidding process this summer that yielded no interest save for $3.00 and $3.15 final bids from ILMN and BGI, respectively.
In summary, while I agree that it is intriguing that ILMN has jumped back into the fray, the potential upside does not out-weigh my concerns regarding downside risk for the stock. I will not be buying GNOM shares at the current price and risk/reward situation.