Illumina Acquires PacBio, Discusses Future In Investor Call

By Allison Proffitt

November 2, 2018 | Yesterday Illumina announced its intention to acquire Pacific Biosciences at a price of $8.00 per Pacific Biosciences share in an all-cash transaction, a total enterprise value of approximately $1.2 billion on a fully diluted basis. After the announcement, the chief executives of the two companies, Francis deSouza, President & Chief Executive Officer, Illumina and Mike Hunkapiller, Ph.D., Chairman, CEO & President of Pacific Biosciences, presented the details and took questions during an investor call.

“It is… clear to us that highly accurate long reads play a complementary and important role in elucidating certain aspects of the genome which is why we are excited about the promise of Pacific Biosciences’ technology and its roadmap,” deSouza said in his prepared opening remarks. “Historically, the challenge for long‐read technologies has been accuracy and cost.  However, Pacific Biosciences recent technology breakthroughs  have  demonstrated  an  unparalleled  level  of  accuracy  for  native  long  reads,  which—when coupled by the impending release of the company’s 8M Smart Cell—will substantially improve the utility and affordability of this technology.”

“Why now?” was a refrain during the question and answer portion of the call. deSouza emphasized that Illumina has been following the long read market “for a while now”, and PacBio’s most recent updates to chemistry and software solidified the timing. “The biggest driver around the timing, frankly the exciting innovations that have come out of PacBio over the past few months, and that are planned to come out over the next year… They’ve been able to dramatically improve the accuracy of their offering as well as the total output of their sequencer,” deSouza said. Illumina was able to move quickly with its offer, he said, and the process has not been competitive.

But some callers questioned the reliability of PacBio’s predicted timing for its most recent updates. The company has struggled in the past with meeting its roadmap, and Hunkapiller conceded a “hiccup” with the launch of the first version of the Sequel chip. But he argued that since then PacBio has been on track and that the newest chip launch is conservatively planned.

Illumina has looked at the new timelines and feels “really comfortable with what’s left to get a product to market,” deSouza said. For the future, both executives pointed to manufacturing, sales, and distribution as advantages Illumina has to offer.

“We have experience with global operations and manufacturing and distribution and support,” deSouza said. “We expect synergies from a go-to-market perspective, bringing their technology into our sales force.”

Combinatorial Strengths

Both executives issued glowing reports to the other’s team and culture. “One of the things we are especially excited about that we get as part of this acquisition is an enormously talented technical team. And specifically an enormously talented technical team that has a lot of single molecule expertise, including expertise with nanopores,” deSouza said. Later he again emphasized, “There are strengths that we love about the PacBio team around chemistry, for example, and single molecules.”

Hunkapiller, in his prepared remarks, predicted an easy “combination” of the two companies. “We also share a similar culture that we think will enable us to integrate quickly and continue to deliver on our technology roadmap that substantially broadens the addressable opportunity for our complementary, long‐read platform.”

Complementary, there, is the key word.

The transaction is expected to close mid-2019, a timeline that is heavily dependent on regulatory approvals around the world. Illumina, who earlier this year announced it had acquired Edico Genome, is the largest player in the sequencing space; PacBio is largest of who’s left. But both executives repeatedly emphasized that the two companies have complementary technologies, not competitive.

“We are the largest player, and we serve the short-read market in sequencing,” deSouza said. “The segments we serve are complimentary to the segments that are served by the long-read players,” he said. “We are uniquely qualified for the segments that we play in and we have a set of competitors in our short-read segment. And frankly we don’t really play in some of the long-read segments at all. If you look at de novo sequencing for example, that’s really well-suited to the long-read players.” Again he emphasized: “PacBio doesn’t compete in the short-read segment; we don’t compete in the long-read segment.”

The market will need both long and short read technologies, Illumina believes. “We do believe there are clinical applications that will leverage long-read technologies,” deSouza said. “There are conditions that are caused by structural variations, for example, that can only be diagnosed using long-read technologies.” He also mentioned tissue typing and pharmacogenomics.

“We think that there is going to be a market for people to pay a higher cost per gigabase and more for a whole genome that’s phased, that’s generated through long reads,” deSouza said. “We think there will continue to be a gap in terms of the cost of a whole genome that’s done using SBS short-read and that’s done using PacBio’s long read technology. And I think that’ll be good from a market perspective. The market will be ok with that, given what they’re getting with the long-read technology.”

First Things First

The call was short on details for what a combined company and product portfolio might look like. “The integration planning is still all in front of us,” deSouza said. But data integration will be the first thing to look for.

“We are very excited to imagine a benchtop version of the offerings,” deSouza said, but when asked about an integrated platform—able to sequence both short and long reads on the same instrument—he turned the conversation to data instead.

“One of the things that we’re excited about is the potential to integrate the data that comes off the two machines, and give customers this—frankly unique in the world—view across the genome by combining the data from the PacBio machines as the Illumina machines. Today customers have to manually stitch it together to gain the insights they want. And I think it will be particularly enabling for our customers if they could get that automatically. With this combination, we’ll be uniquely able to do that.”

Hunkapiller jumped in to agree.

“One of the things that we’ve seen once we’ve shown people how to get highly-accurate individual molecule reads, is they can use the same kind of informatics tools that have been developed for Illumina-type reads,” Hunkapiller said. “And they’re really finding that really attractive because it makes it that much easier to integrate datasets, which has been somewhat of a trial and error method for a lot of them who don’t necessarily have great informatics expertise themselves. That is certainly going to be a key element of what we do getting together.”