IT’S AN ACQUISITION THAT BRINGS TOGETHER two different gene sequencing technologies into one firm. On Nov. 1, Illumina, Inc., announced an agreement to acquire Pacific Biosciences (PacBio) for $1.2 billion.
This deal will bolster Illumina’s already-dominant position in the market for DNA-sequencing machines. Wall Street analysts quickly pointed out that this gives Illumina control of two gene sequencing technologies. Illumina will be able to complement its short-read DNA-sequencing technology with PacBio’s ability to do long reads of DNA. The timing of the deal also is significant because PacBio’s long-read technology is expected to get a boost in the coming months.
Illumina agreed to pay $8 per share for PacBio, a premium of 79% over the closing price of PacBio stock on Oct. 31, according to a report in Forbes. The deal is subject to approval from regulators and from both boards. Illumina said it expects to close the transaction in the middle of next year.
Short and Long DNA
By uniting their technologies, the two companies will deliver, “a more perfect view of the genome,” said Illumina CEO Francis deSouza. Based in San Diego, Illumina had a profit of $726 million on sales of $2.75 billion last year.
The much smaller PacBio, based in Menlo Park, Calif., had sales of $93.5 million last year, representing an increase of 19% over sales in 2016 of $78.6 million.
In its most recent quarter, PacBio reported on Nov. 1 that it had a net loss of $25 million, up from a net loss of $22 million for Q3 2017 and that it had revenue of $18.2 million, compared with $23.5 million in the same period of 2017. The decrease in revenue resulted from lower sales of instruments and consumables, PacBio said. Motley Fool reported that PacBio has never made a profit.
The key to the transaction will be the ability to unite the two companies’ technologies, according to Matthew Herper who interviewed deSouza for Forbes.
Illumina has a dominant position with an estimated share of 75% of the market for gene-sequencing instruments and has driven down the cost of sequencing a human genome to less than $1,000 today from $10 million just 10 years ago, according to the San Diego Union-Tribune.
Eventually, deSouza expects Illumina will drive the cost of sequencing a genome down to $100 per person, Herper wrote. But its instruments are based on sequencing by synthesis (SBS), which is what’s called a “short-read” technology in which machines assemble and analyze many small fragments of DNA.
“For most parts of the human genome this works fine, but it is not as useful in cases where the DNA has been structurally rearranged, or in areas where a pattern in the DNA repeats again and again, making it harder to puzzle the code together from tiny pieces,” deSouza explained.
Using what’s called “long-read” technology, PacBio has pioneered a different approach. To analyze a single molecule of DNA, PacBio’s machines decode long stretches with high accuracy, Herper reported, adding that at $12,000 to sequence a single human genome, PacBio’s method is costly.
To date, the high cost of long reads has been a barrier to higher sales, according to an article by Jim Crumly writing for investor site The Motley Fool. Next year, PacBio expects to use a new core chip in its systems that could cut the per-genome cost to $1,000 per genome, which would open up the market for PacBio’s Sequel machines, the site said.
Analysts pointed out that if PacBio can hit that $1,000 price for a whole human genome sequence using a method that produces longer reads of DNA, it would be poised to significantly expand its share of the market.
“PacBio executives believe that the improvements in throughput and cost that the new chip will bring will expand the accessible market for the company’s sequencers from $660 million in 2017 to $2.5 billion in 2022, a 30% annualized growth rate,” Crumly wrote.
Currently Illumina has an installed base of more than 11,000 instruments, while PacBio has 425 systems in place. PacBio’s machines cost about $350,000 each and Illumina’s instruments sell for about $1 million each, he added.
Combining Two Gene Sequencing Technologies Could Deliver Genomes That are More Complete
BY USING THE TWO TECHNOLOGIES TOGETHER, the combined companies of Illumina and Pacific Biosciences are poised to produce more complete genomes of any organism, according to published reports.
While there are other companies that do work similar to that of Pacific Biosciences in the long-read market (such as Oxford Nanopore), PacBio has distinguished itself by producing highly accurate results, according to Illumina CEO Francis deSouza. In an interview with Matthew Herper in Forbes, deSouza said of PacBio, “It’s accuracy profile is really better than anything else in the [long-read] market.”
On a conference call with analysts on Nov. 1, to discuss Illumina’s pending acquisition of PacBio, deSouza explained that improvements in PacBio’s technology were one of the reasons for Illumina’s interest in PacBio.
“The accuracy that you can now achieve with long-read technologies essentially is on par with what you can achieve with SBS short-read technology. For us, that was critically important,” stated deSouza during the conference call with stock analysts and reporters on Nov. 1, according to a report in Genetic Engineering and Biotechnology News.
“For us, that was the threshold,” deSouza added. “You had to be able to get to roughly about a Q50 consensus accuracy for the technology to fit within the portfolio of what we were looking to do. From our perspective, Pacific Biosciences was the only long-read technology that met that threshold.”
Under the Phred Quality Score, a level of Q50 is said to be 99.9999% accurate, meaning the probability that the base is inaccurate would be 1 in 100,000.
By combining the two companies’ instruments, over time Illumina and PacBio will attract more researchers and clinicians as customers, wrote Jim Crumly for the Motley Fool, an investor site. In that way, Illumina will continue to dominate the sequencing market, he added.