Back in 2012, Roche (OTC:RHHBY) attempted to acquire Illumina (NASDAQ:ILMN) for $6.2 billion. Illumina staved off that buyout attempt, with the company's management insisting that the proposed price was too low, due to the increasing demand for its gene-sequencing products.

That turned out to be a smart move for Illumina. The company's market cap now stands above $35 billion. Since the initial bid by Roche, Illumina stock has soared over 670% compared to Roche's share-price increase of 44%.

But that's all history. Which of these two stocks is the better pick for investors now? Here's how Illumina and Roche compare.

DNA strands

Image source: Getty Images.

The case for Illumina

What Illumina's management team said about increasing product demand in 2012 is still true today. That's especially the case for the company's NovaSeq gene-sequencing system introduced last year.

Speaking at the recent J. P. Morgan Healthcare Conference, Illumina CEO Francis deSouza said that the launch of NovaSeq continues to exceed expectations. Around a quarter of customers ordering the system are either new to Illumina, or are converting from lower-cost desktop systems. That's great news for Illumina, because it shows that NovaSeq is helping to expand the company's market.

More good news should be on the way. Illumina anticipates that most of the roughly 850 customers who currently use its HiSeq X high-throughput gene-sequencing system will switch to NovaSeq over the next few years. That migration will bump up the company's system sales.

Expanding the market was also a chief goal with the introduction of another new system -- iSeq. The new desktop gene-sequencing system costs less than $20,000 and boasts a 99.8% accuracy rate. Illumina thinks that there are more than 50,000 potential customers for iSeq, including 35,000 who are new to next-generation sequencing.

Illumina also is making smart moves in positioning itself for rising demand in a couple of key newer markets -- consumer genomics and clinical genomics. DeSouza thinks the consumer-genomics market has reached a point of inflection, with more than 7 million consumer samples sequenced or genotyped in 2017. Last year was also a "watershed year" for clinical genomics, according to deSouza. Several products using clinical genomics won regulatory approval. More approvals are likely in the future.

All of this underscores what is, in my view, the key reason to buy Illumina stock: The company continues to out-innovate and out-execute its competition. By doing so, Illumina not only can claim a bigger piece of the pie, it also increases the size of the pie. 

The case for Roche

Roche competes against the company it tried to buy a few years ago. However, gene sequencing is only part of Roche's business. Roche's diagnostics division, which includes gene-sequencing systems and many other products, makes up less than one-fourth of the company's total revenue.

The bigger source of revenue for Roche is its pharmaceuticals division. Roche's lineup includes several drugs that are generating especially impressive growth. Four of the company's current blockbuster drugs -- Perjeta, Actemra, Xolair, and Activase -- continue to enjoy solid sales momentum.

Newer drugs should provide even stronger growth for Roche. Tecentriq won Food and Drug Administration (FDA) approval in 2016 for treating urothelial carcinoma and a specific type of lung cancer. The immunotherapy gained approval for treating bladder cancer last year. Multiple-sclerosis drug Ocrevus won FDA approval in March 2017. Alecensa received a thumbs-up from the U.S. regulatory agency in November for treating non-small-cell lung cancer.

This last drug, Alecensa, highlights the potential for Roche to gain ground in precision medicine, sometimes referred to as personalized medicine. Roche's combination of drug development and diagnostics expertise sets it apart in the industry. In addition, Roche bought a big stake in Foundation Medicine in 2015, and markets the company's genomic-testing products outside of the U.S. Its relationship with Foundation Medicine makes Roche an even better precision-medicine play.

Roche's primary challenge is that sales growth is stagnating for several of its older and top-selling products, especially MabThera/Rituxan, Herceptin, and Avastin. Competition from biosimilars will only worsen this situation. Still, the company's new products should enable Roche to continue to generate solid single-digit earnings growth over the next few years. 

Better buy

I think that the better investing decision mirrors what Roche wanted to do in 2012: buy Illumina. The company remains at the forefront of gene sequencing, and I don't see that changing. And the market for gene sequencing should continue to grow, thanks in part to companies like Roche developing new drugs that depend on a deep understanding of the human genome.

Illumina isn't cheap. Its shares currently trade at nearly 53 times expected earnings. Investors shouldn't be too scared by that steep valuation, though -- Illumina has been even more expensive in the past. There's a reason why the stock trades at such lofty levels: Many investors realize that Illumina has a pretty solid moat and the ability to sustain its market leadership for a long time to come.

The good news is that regular investors in 2018 aren't hindered by the issues that Roche faced in 2012. You can buy Illumina (or part of it, at least) without the gene-sequencing pioneer trying to fight you off.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.