Citing Anti-Competitive Practices, FTC Moves to Block Illumina-PacBio Takeover

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The U.S. Federal Trade Commission (FTC) filed to block Illumina’s proposed acquisition of Pacific Biosciences of California (PacBio). Illumina is attempting to buy PacBio for $1.2 billion.

The FTC alleges that Illumina is trying to unlawfully maintain a monopoly in the U.S. market for next-generation DNA sequencing (NGS) systems by removing PacBio as a competitive threat.

The FTC stated, “The complaint also alleges that the proposed acquisition is illegal because it may substantially lessen competition in the U.S. NGS market by eliminating current competition and preventing future competition between Illumina and PacBio. The Commission also authorized staff to seek a temporary restraining order and a preliminary injunction in federal court, if necessary, to maintain the status quo pending the administrative proceeding.”

Illumina started in the sequencing market in 2007 when it acquired Solexa. At that point the cost of sequencing the human genome was more than $200,000. It has since dropped to slightly less than $1,000. Since then, Illumina’s share value has increased 1,500%.

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PacBio is one of a handful of companies that have tried unsuccessfully to challenge Illumina in the NGS market. PacBio’s instrumentation isn’t faster or more efficient than Illumina’s, but approaches the task differently. Illumina’s NGS machines read out small pieces of DNA code and piece them back together. PacBio’s approach isn’t as accurate, but read larger pieces of DNA, called “long reads.” By merging the two approaches, they can develop instrumentation that is far more accurate.

Illumina argues that the two approaches are not competitive, but complementary.

“We strongly disagree with the FTC’s decision and will continue to work through the regulatory approval process as we consider next steps,” stated Illumina spokesman Eric Endicott. “We believe that the acquisition will benefit the industry and customers, and the facts of our proposed transaction support this.”

The FTC is not the only regulatory agency that has expressed concern over the merger. In October, the UK’s Competition and Markets Authority also blocked the merger, saying it was noncompetitive. At the time, analyst with Cowen wrote, “We believe the deal is now highly unlikely to be completed.”

PacBio is one of three other companies, the FTC notes, that manufacture and sell NGS systems in the U.S. The FTC also argues that PacBio has made “significant technology advancements in recent years.” These advances have improved the accuracy and throughput of the systems while also decreasing costs. The FTC believes that customers are switching some sequencing volume from Illumina to PacBio for certain applications and that PacBio “is poised to take increasing sequencing volume from Illumina in the future.”

“When a monopolist buys a potential rival, it can harm competition,” stated Gail Levine, FTC Bureau of Competition Deputy Director. “These deals help monopolists maintain power. That’s why we’re challenging this acquisition.”

Illumina has a market cap of $48 billion, although it posted a disappointing quarter in July. In October, Illumina reported third-quarter revenue of $907 million, with $2.591 billion for the nine months. In November, PacBio reported $18.5 million in quarterly revenue and $53.2 million for the nine-month period.

Both companies reported an amendment to the acquisition agreement extending the deadline to December 31, 2019 with an option to extend it to March 31, 2020.

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