FTC Challenges PacBio Acquisition, Says Illumina is a “Monopolist”

Xconomy San Diego — 

About one year ago Illumina agreed to splash out $1.2 billion on Pacific Biosciences, a rival maker of DNA sequencing technology. Now the Federal Trade Commission is looking to block the deal, and says it was meant to steamroll a competitor and maintain Illumina’s “monopolist” position atop the industry.

The San Diego-based genomics giant (NASDAQ: ILMN) dominates the market when it comes to technology for sequencing, or “reading,” the genetic code. Illumina machines read short pieces of DNA that have been chopped up, copied, then reassembled. PacBio (NASDAQ: PACB) is an attractive acquisition target because of its prowess with lengthier strands, called long reads, which reduce the potential for error in that reassembly process. Sequencing tools are used in research and in clinical care to pinpoint the genetic cause of diseases.

Illumina has said the deal would increase innovation in the sequencing market by bringing together its expertise with PacBio’s complementary abilities, benefiting the industry and healthcare as a whole.

The FTC disagrees.

“When a monopolist buys a potential rival, it can harm competition,” said Gail Levine, deputy director at the FTC’s Bureau of Competition, in a prepared statement. “These deals help monopolists maintain power. That’s why we’re challenging this acquisition.”

Initially Illumina forecast the deal would wrap up by mid-2019, but antitrust regulators in the US and UK have been studying the potential ramifications of the tie-up.

The FTC’s challenge puts the deal on the rocks in two major markets, further reducing its likelihood of success. Illumina isn’t done pursuing PacBio yet, though.

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

The FTC complaint accuses Illumina of “seeking to unlawfully maintain its monopoly in the US market for next-generation DNA sequencing (NGS) systems by extinguishing PacBio as a nascent competitive threat,” according to the agency’s statement, issued Tuesday.

Without PacBio, which has continually lowered the costs of its sequencing services, making it “a closer alternative to Illumina than ever before,” there will be less incentive for either firm to innovate, the agency said.

SVB Leerink analyst Puneet Souda said the “strongly worded letter” leaves Illumina with “limited options to proceed” with the proposed acquisition.

An administrative trial is slated for August.

Incidentally, the complaint come a day after the FTC closed the book on a 10-month investigation of another merger that’s been under regulatory review: Roche’s $4 billion-plus proposed acquisition of Spark Therapeutics (NASDAQ: ONCE). That deal, however, got the green light.

The debate in the UK over the Illumina-PacBio arrangement continues. Earlier this year, the UK’s Competition and Markets Authority (CMA) released provisional findings from its review, in which it posited that such a deal could “harm critically important innovation in the systems created to support DNA sequencing.”

Illumina said the concerns were unfounded, but later offered to allay those worries by offering free licenses to some of its IP to potential competitors.

The UK’s Oxford Nanopore Technologies, PacBio’s main rival when it comes to long-read capabilities, wasn’t mollified: It called the offer “illusory,” and, in a Nov. 19 letter to the CMA, said the merger would put Illumina in “a stronger position than ever to foreclose entry and expansion in this market.” The San Diego company, in turn, accused Oxford of misconstruing its proposal on purpose “with a view to cajoling the CMA” to bar the match.

The CMA recently extended the deadline for its final decision from this month to early February.