(By Balachander) Complete Genomics Inc. (NASDAQ:GNOM) shares jumped 14.23 percent in early trade on Monday after the provider of human genome sequencing technology announced a merger agreement with Chinese pharmaceutical company BGI-Shenzhen.
Under the terms of the agreement, the Mountain View, California-based developer of DNA sequencing platform will be acquired by a U.S. unit of BGI for $3.15 per share in cash, a 18 percent premium to GNOM's previous closing price.
The deal represents a 54 premium to the closing share price of Complete Genomics on June 4, a day before the company said it is looking at strategic alternatives, including a possible a sale or equity investment. The company also announced a restructuring program that included jobs cuts.
"There remains a chance for higher bids on GNOM, so existing shareholders may want to hang on for a bit, however, the strong endorsement of management and the company's Board suggest that this deal is likely a fait accompli," said PropThink, an intelligence service that delivers long and short trading ideas to investors in the healthcare and life sciences sectors.
PropThink said shares of Complete Genomics have been decimated since mid-2011, as the company's low-priced outsourcing model for DNA analysis has gained some traction, but not enough to overcome the capital needs of the business.
Also, competitors like Illumina (NASDAQ:ILMN) creating their own genomic outsourcing services business has cast doubt on GNOM's ability to gain meaningful share in the segment as an independent company despite GNOM's strong technology base, PropThink said.
PropThink said larger companies in the industry such as Roche (OTC:RHHBY) were rumored to be eyeing GNOM as a take-out candidate. Today's news, however, demonstrates that the company may have had difficulty negotiating with well-known competitors and is going to take advantage of the resources that can be provided by BGI-Shenzen.
Complete Genomics had revealed its plans to focus on clinical sequencing and the restructuring plan positions it to capture this emerging opportunity.
For the second quarter ended June 30, the company posted a wider loss as 29 percent rise in costs and expenses offset 48 percent rise in revenue. Its net loss widened to $18.8 million from $15.9 million on revenue of $8.6 million.
As of June 30, the company's backlog was around 4,600 genomes, including about 1,000 genomes booked in the second quarter, representing an aggregate revenue potential of roughly $22 million. It expect to deliver over 2,200 genomes in the third quarter.
The deal is expected to close in early 2013.
The stock, which has been trading in the 52-week range between $1.57 and $8.50, traded at $3.05 on Monday.