US FTC Moves to Block Illumina's $1.2 Billion Acquisition of PacBio

On December 17, 2019, local time, the U.S. Federal Trade Commission (FTC) announced that it had authorized action to block Illumina’s proposed $1.2 billion acquisition of PacBio.

In an administrative complaint not yet made public, the FTC stated that Illumina attempted to maintain its monopoly position in the U.S. market for next-generation DNA sequencing systems by “extinguishing PacBio as a nascent competitive threat.” The document indicated that the proposed acquisition was “illegal,”Because it may weaken current competition and prevent future competition between Illumina and PacBio, thereby significantly undermining competition in the U.S. NGS market.

In response, an Illumina spokesperson stated, “We strongly oppose the FTC’s decision and will continue to pursue regulatory approvals as we proceed with next steps. We believe this acquisition will benefit the industry and customers, and the factual representations cited in the proposed transaction are supported by evidence.”

The FTC contends that PacBio has made significant technological advancements in recent years, enhancing the accuracy and throughput of its sequencing systems while reducing costs. Consequently, PacBio’s sequencing technology is closer than ever to being a “substitute” for Illumina’s. Driven by specific application needs, some customers have already switched from Illumina to PacBio. Furthermore, PacBio and Illumina have been mutually driving innovation; this acquisition would diminish the merged entity’s incentive to innovate and develop new products, thereby harming market competition.

It is reported that the FTC has authorized its staff to seek temporary restraining orders from federal courts, when necessary, to maintain the status quo pending administrative proceedings. The FTC is a federal agency established in 1914 to enforce various antitrust and consumer protection laws, with the aim of ensuring that national market conduct remains competitive and develops in a prosperous and efficient manner, free from unreasonable restraints.

In addition to the FTC, the UK Competition and Markets Authority (CMA) has also raised concerns about the acquisition on similar grounds. In fact, in November 2018, after Illumina announced its plan to acquire PacBio for $1.2 billion, both the FTC and the CMA stated that they would investigate the transaction. Although both companies indicated that the deal would be completed by mid-2019, Illumina postponed the expected closing to the fourth quarter as the CMA’s investigation entered its second phase. In October, the CMA issued a provisional finding that the transaction would result in a “substantial lessening of competition” in the UK next-generation sequencing (NGS) market and recommended blocking the deal as a remedy. Now the FTC also appears to favor blocking the transaction, which could become another major obstacle to the acquisition.

Following the announcement, PacBio’s stock price fell 4% to $5.14 in early Nasdaq trading, while Illumina’s shares remained flat.Some Wall Street analysts stated that the announcement is unlikely to affect investors’ perception of Illumina.Puneet Souda, an analyst at healthcare investment firm SVB Leerink, stated: “We believe this will have a long-term impact on Illumina'sMarketGrowth will not be affected, as its short-read sequencing technology remains the key driver of demand development and new market expansion.。”

Some analysts also believe: “This transaction is not key to Illumina’s market expansion. Therefore, the substantive impact of this news is limited.” Some experts even argue that the FTC’s stance will not have a negative impact on PacBio. The promotion of PacBio’s Sequel II system has progressed smoothly, with strong performance in the first two quarters.The collaboration with Illumina may also drive the further application of PacBio technology.Therefore, PacBio is currently valued higher than at the time the transaction was announced.

According to documents filed by PacBio with the U.S. Securities and Exchange Commission, Illumina notified PacBio that the termination date of the merger agreement had been extended to March 31, 2020. This extension could result in losses for Illumina of up to $34 million.

References:

1.FTC Challenges Illumina’sProposed Acquisition of PacBio

https://www.ftc.gov/news-events/press-releases/2019/12/ftc-challenges-illuminas-proposed-acquisition-pacbio

2.FTC Moves to Block $1.2BIllumina, Pacific Biosciences Deal

https://www.genomeweb.com/sequencing/update-ftc-moves-block-12b-illumina-pacific-biosciences-deal#.XfrkQP03vIU