Roche, Pacific Biosciences forge clinical Dx deal

Roche's ($RHHBY) massive diagnostics division has signed on with yet another development partner. This time, the deal is with California's Pacific Biosciences ($PACB), which focuses on gene sequencing, and the pair will develop diagnostics products for clinical research.

As part of their agreement, Roche will pay Pacific Biosciences $35 million up front and as much as $40 million more in development-related milestone payments.

Pacific Biosciences' shareholders reacted quite strongly to the news, driving the stock up nearly 73% to $5.98 during afternoon trading Sept. 25. It's good news for the Menlo Park company, considering it needs to build more revenue sources. Pacific Biosciences booked $6 million in revenue during its 2013 second quarter but lost $20.4 million. Two years ago, the company slashed 130 jobs from its payroll (28% of its workforce) to reduce spending, and it has searched for new market avenues to boost lab adoption of its sequencing machines.

Roche, in turn, is focused on building its already formidable diagnostics arm into something far larger and more diverse, and its deal with Pacific Biosciences will help the Swiss drug and diagnostics giant get there. Pacific Biosciences' PacBio RS II DNA sequencing system uses cutting-edge technology to quickly and cheaply decode DNA.

The deal divides things pretty evenly. Pacific Biosciences said it will develop and manufacture a number of gene-sequencing and other clinical products set for exclusive sale to Roche. Roche, in turn, gains exclusive global rights to sell these products for human in vitro diagnostics. Pacific Biosciences can still sell its DNA sequencing systems to sectors including applied markets and other areas outside of in vitro diagnostics.

Dan Zabrowski, head of Roche's Sequencing Unit, said in a statement that the partnership will "accelerate and support the transition of DNA sequencing into routine diagnostics through our joint development efforts."

Mike Hunkapiller, president and CEO of Pacific Biosciences, noted that the deal should "allow accelerated commercial success for both companies."

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