BGI's proposed takeover of Complete Genomics might be a win-win for both partners as well as for customers, according to industry observers and current users of Complete's whole-genome sequencing service.
The deal, announced earlier this week and expected to close early next year, will provide Complete with much-needed cash, enabling its continued operations, while BGI will gain access to an additional sequencing platform that would make it somewhat less dependent on Illumina's technology, as well as a sequencing facility located in the US. Customers would benefit because the alignment guarantees continued competition between Complete's and Illumina's human whole-genome sequencing services.
Complete Genomics and BGI-Shenzhen said on Monday that they have entered into a merger agreement under which a US subsidiary of BGI will launch a tender offer to purchase all outstanding shares of common stock of Complete for $3.15 per share in cash, or a total of about $117.6 million. Following the signing of the merger agreement, Complete will also receive up to $30 million in bridge financing for its operations.
Complete would continue to operate as a separate company, and its headquarters and operations would remain in Mountain View, Calif.
The company's board of directors, executive officers, and a few major stockholders –owning about 17.5 percent of the company collectively – are supporting the agreement, and Complete's board has unanimously recommended that stockholders tender their shares. The offered share price is a 54 percent premium to Complete's closing price on June 4, just before it announced it was seeking "strategic alternatives" to secure new financing.
The tender offer is dependent on a number of conditions, including approval by Chinese regulatory authorities, and the parties said they expect the deal to be completed in early 2013. Citi is BGI's financial advisor and O'Melveny & Myers its legal advisor for the transaction, and Complete is advised financially by Jefferies & Company and legally by Latham & Watkins.
Complete has been in dire financial straits as revenues have not kept up with expenses, and BGI's offer puts it on sure financial footing again. In June, Complete laid off about 20 percent of its workforce in an effort to reduce its cash burn, and said it would postpone a planned expansion of its sequencing facility until demand for clinical-grade genomes increases (IS 6/5/2012). As of June 30, the company had $39.3 million in cash and cash equivalents, down $23.8 million from the end of the first quarter.
Cliff Reid, Complete's CEO and chairman, said in a statement that "we believe the transaction with BGI represents the best outcome for our stockholders, offering them liquidity and a premium value" as well as "a great outcome for our customers, present and future." He said that pooling resources with BGI "provides an opportunity to accelerate our vision of providing researchers and physicians with the genomic information needed to prevent, diagnose, and treat cancers and other genetic diseases."
Wang Jun, BGI's CEO, said that Complete's proprietary human whole-genome sequencing technology, coupled with other platforms used at BGI – mostly Illumina's HiSeq – "will fit well with our research and business requirements and position Complete to become an even more successful global innovator."
Having a second sequencing platform that is independent of Illumina's might also benefit BGI by providing it with a technological alternative, especially because BGI is competing with Illumina's own service business, including the Illumina Genome Network.
In addition, owning a US-based sequencing facility might help BGI attract customers who are unwilling, or not permitted, to send samples across international borders to BGI's main sequencing facility in Hong Kong. BGI already has a US presence via its subsidiary, BGI Americas, and it has access to US-based labs through its partnerships with the Children's Hospital of Philadelphia and the University of California Davis, but Complete Genomics would be its first wholly owned US-based sequencing center.
It also appears that BGI has an eye on providing clinical sequencing services in the US. "We look forward to growing the business to improve medical research and, when clinical services are provided, support better disease diagnosis with tools that can be used by doctors and hospitals to treat their patients," Wang said in a statement.
In July, Complete took steps toward offering clinical human whole-genome sequencing – a service that competitor Illumina already provides through its CLIA lab – by applying for a CLIA license, which it expects to receive shortly.
Several Complete Genomics customers welcomed the news of BGI's investment in the company.
"I think it is good that CG will be able to keep going," said Mike Snyder, chair of the department of genetics at Stanford University, in an email message. He noted that the agreement is good for the industry because competition keeps prices down. In addition, different sequencing technologies have different types of errors, so "sequencing genomes using multiple platforms is terrific for getting highly accurate human genome sequences."
Last year, Snyder's group published a study in which it compared Illumina's and Complete's sequencing technologies and found that they complement each other (IS 12/20/2011). At the time, the Stanford team said it was using both technologies for whole-genome sequencing studies.
"The merger would be a huge advance for BGI," said John Blangero, director of the AT&T Genomics Computing Center at the Texas Biomedical Research Institute. "The whole-genome sequencing quality coming out of Complete Genomics technology has been exceptional and would substantially improve the reputation of BGI for genomic services," he said. Blangero has been involved in a study to explore the genetics of type 2 diabetes in multi-ethnic samples, for which Complete Genomics sequenced the genomes of 600 individuals from 20 Mexican-American families (CSN 5/16/2012).
According to Mark Veugelers, integration manager at the Flanders Institute for Biotechnology in Belgium, VIB, which has been a customer of both Complete's and BGI's sequencing services, the merger could help reduce Complete Genomics' backlog by moving some samples to BGI, which he said has excess sequencing capacity available.
Also, he said, VIB scientists would be very interested in applying Complete's long- fragment read technology, which the company plans to commercialize next year, in organisms other than humans. "It would be very interesting if BGI also starts offering this to their customers. It's something a lot of our groups would certainly be interested in," he said.
The merger would also relieve customers' fears that Complete might go out of business. "Their data format is very specific," Veugelers said, so if there was no more support for the data, that might cause problems. "In that regard, it's quite good that they keep on going," he said.
Finally, he said, the deal might make life easier for institutions like VIB who are already customers of both BGI and Complete Genomics. "Maybe in the end, instead of having talks with both of them, we can just have talks with one."
Not many appear to have expected the merger. "We are very surprised about this move of BGI," said Peter Pohl, CEO of German service provider GATC Biotech, which sees BGI as one of its main competitors, in an email message. He said BGI's motivation might have been to gain more access to pharmaceutical and diagnostic clients, or to obtain Complete's sequencing technology. "For Complete Genomics it was quite clear that they had to look for strategic improvement facing Illumina as the clear market leader," Pohl said. "It seems as if the race is on again."