Institutional Shareholders Services advised Illumina shareholders to reject proposals from Swiss pharmaceutical giant Roche, and agreed with Illumina's board that the Swiss pharmaceutical's offer to take over the San Diego-based company is inadequate.

"Because the revised offer of $51 is not yet demonstrably in the range of a compelling starting point for negotiation, the board appears to have acted appropriately in rejecting the Roche bid," ISS said in its report.

Last week, Illumina rejected the sweetened offer, raised from a January offer of $44.50 per share, saying it dramatically undervalued the company.

Roche responded by launching a tender offer and a proxy contest to replace four Illumina directors with its own nominees. It also offered a proposal to expand the board by two additional seats and fill them with Roche nominees. If Roche is successful on all these proposals, its nominees would comprise a majority on the board.

Roche has said its offer is the highest ever for a company in the sector. Illumina makes equipment that decodes a person's entire genome. A combination of the two companies would give Roche a leading position in the promising market for gene sequencing and fit snuggly with its large diagnostics business.

ISS said that traditional mergers and acquisition valuation metrics are inadequate for "a company whose real potential - the vast end markets, in and beyond healthcare, which are beginning to turn to its technology - is all before it."

(Reporting By Ilaina Jonas; Editing by Richard Chang)

• A Permanent Economic Emergency