Two big updates hit the genome sequencing field on Wednesday, and the verdict is in: Illumina (Nasdaq: ILMN) will not take the money Roche (OTC: RHHBY) offered and run. Unfortunately, its own money is running a little less freely than it was a year ago. Shareholders had been primed for the rejection, with the expectation that Roche will soon up the offer. Most were also ready for fourth-quarter results roughly in line with expectations -- which ran slightly under Illumina's take for the same period a year ago.

These two pieces of information are informative for genomics investors as they paint a picture of a highly valued company that's currently struggling to take itself and its industry to the next level. Life Technologies (Nasdaq: LIFE), which also reported earnings on Wednesday, saw broad improvement on top and bottom lines.

What's happening on the ground?
Illumina shares have tumbled since last summer, culminating in a steep drop in October that hadn't been erased till Roche's bid. With that sting still fresh, Illumina's management undoubtedly felt insulted by what must have seemed a bottom-fishing offer. Remember, Illumina was worth over $75 a bit over half a year ago.

But the company didn't quite justify a return to those heights with fourth-quarter revenue clocking in $15 million under the year-ago quarter. Net income took a bigger hit, but that was expected by analysts and was due almost entirely to one-time expenses.

Free cash flow showed a positive trend, up $12 million from the year-ago quarter with the full-year tally an impressive $57 million greater than 2010. Illumina's done a good job recovering from its steep third-quarter drop, but the recovery isn't over yet. Two quarters ago, Illumina generated $287 million in revenue and $31 million profit. Ignoring the onetime profit dip, Illumina's quarterly revenue is still 13% lower than it was two quarters ago. For a company that's experienced a full decade of nearly uninterrupted growth, that's a little worrisome.

Too good for this hookup
If you believe that inexpensive genome sequencing will change medicine, then these short-term movements shouldn't worry you too much. A bigger worry might be the Roche bid, which could gobble up Illumina before it meets that future head-on.

Illumina believes that 90% of the sequencing done in the world is run on its machines. In a way, such statistics remind me of Microsoft and its leadership role in standardizing the chaotic early PC industry. With 956 million physician office visits tallied annually in the United States alone, routine sequencing could be just as big an opportunity for Illumina as inexpensive computers were for Microsoft. Illumina projects a $600 million opportunity if $1,000 genome sequencing achieves a 1% penetration rate. That seems like just a start.

Illumina believes its market is currently worth $3 billion, but the company is also well aware of the huge potential of broader sequencing use. There are already signs that consumers are starting to pick up on the value of genome sequencing, as CEO Jay Flatley pointed out a $7 million order from Ancestry.com (Nasdaq: ACOM). The fact that $7 million in consumer demand exists at this stage is a great sign, despite its relatively small present impact on revenue.

Final thoughts
These snippets of future potential led Illumina to reject the Roche bid. By calling the offer "grossly inadequate," Illumina's leadership sends a clear sign that they expect greater growth than before. I think the company was right to reject Roche's offer. While those who bought in a month ago are happy today, there's enough room for further growth that shareholders shouldn't cheer a buyout.

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