FTC puts the brakes on Illumina's $1.2B offer for DNA sequencing rival PacBio

The Federal Trade Commission has moved to block Illumina’s $1.2 billion takeover of its emerging rival, Pacific Biosciences, saying the DNA sequencing giant would substantially be harming competition.

The commission also gave its staff clearance to seek temporary restraining orders or federal injunctions, if necessary, to maintain the current business while its complaint is heard by an administrative law judge in a formal hearing.

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

In November 2018, Illumina agreed to pay a 71% premium over PacBio’s share price at the time, in a bid to assimilate the company’s long-read sequencing technology. This could make it easier to identify larger, structural variants in the genome that may be behind certain rare diseases—and would fill a gap in Illumina’s pipeline by complementing its faster short-read platforms.

In its proposal, Illumina estimated that the market opportunity for long-read applications could grow from 2017’s $660 million to about $2.5 billion by 2022.

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According to the FTC, PacBio has worked to increase the accuracy and throughput of its next-generation sequencing systems, and lowered its costs, putting it in a place to chip away at Illumina’s massive global market share of about 80%.

Those words echoed statements from Illumina CEO Francis deSouza last year, who described PacBio’s “dramatically” improved output—and how its “accuracy mirrors that of Illumina’s in short-read sequencing”—as attractive facets of the deal. He also pointed to PacBio’s new chip designs, saying they could make long-read technology more accessible than before.

But the FTC has claimed that the acquisition would also reduce the combined company’s incentives to develop new products—if it were to offer both short- and long-read products—and that Illumina and PacBio’s rivalry drives them to innovate.

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

This is not the first blow against the deal. In October, the U.K. Competition and Markets Authority said the merger would “result in a significant loss of competition,” and would leave few alternative providers of DNA sequencing in the country, as well as globally.

The FTC’s administrative hearing is scheduled for August 2020.