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End of the road
SAN DIEGO & MENLO PARK, Calif.—A $1.2-billion merger and acquisition (M&A) deal between Illumina Inc. and Pacific Biosciences of California Inc. is officially off the table now, as the two parties announced Jan. 2 that they “have mutually agreed to terminate their merger agreement” that had been initially announced on Nov. 1, 2018.
As noted in a news release about the termination decision, the lengthy regulatory approval process the transaction had already been subjected to and continued uncertainty around the ultimate outcome moved them to scuttle the deal, and now Illumina will pay Pacific Biosciences a termination fee of $98 million.
Things started to look bad in June 2019 when the UK Competition and Markets Authority (CMA) went into the second phase of an investigation into whether to block the M&A and Illumina pushed back the expected closing date for the deal. Then in October, CMA’s provisional findings said that the deal would lessen competition in the next-generation sequencing (NGS) market in the United Kingdom and so it might indeed block the deal—news that was followed in December by word that the U.S. Federal Trade Commission had filed an administrative complaint alleging Illumina was seeking to unlawfully maintain a monopoly in the NGS market in the United States.
Both companies publicly expressed their disappointment, with Francis deSouza, president and CEO of Illumina, saying, “We believe this proposed combination would have broadened access to Pacific Biosciences sequencing technology, significantly expanded and accelerated innovation and ultimately increased the clinical utility and impact of sequencing,” and Dr. Michael Hunkapiller, CEO of Pacific Biosciences, adding, “We are disappointed that our customers and other stakeholders will not realize the powerful advantages of integrating the sequencing capabilities of our two companies. With that said, we are confident in the future of Pacific Biosciences as we continue to pursue improved sequencing accuracy and throughput that can be utilized in an ever-expanding number of applications.”
Analysts seem largely unfazed by the outcome, with Piper Jaffray’s William Quirk echoing Hunkapiller’s optimism in an analyst note that said, in part, “We continue to believe the Sequel II launch is going well, with strong placements the first two full quarters of the launch. A distribution partnership with Illumina could also drive further adoption of PacBio tech. We believe PacBio standalone is worth more now than when the deal was announced.”
Likewise, there doesn’t seem to be much worry for Illumina’s future in the wake of the deal’s collapse.
For example, Evercore ISI analyst Vijay Kumar wrote that the M&A deal was “not key to Illumina’s growth story ... Thus, the news is more noise than substance in our minds” and, if anything, removes the risk of potential dilution from the transaction, Kumar added.
A note from SVB Leerink written by Puneet Souda and colleagues predicted that the life-sciences and other research markets would lose out more than Illumina, saying that “While it is disappointing that the deal will not go through, we see limited to no impact to ILMN [Illumina]. Combining the short-read + long-read sequencing data would have been a positive for the industry and the sequencing end-market as a whole—as it would have unleashed applications not accessible today or given access to regions of genomes that are refractory to either technologies.
“We believe the long-term growth trajectory for ILMN remains intact, even without PacBio, and ILMN holds potential to pursue other avenues for long-read sequencing including building the capability internally.”