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Mergers and Acquisitions — Both Successful and Failed — Dominated the NGS World in 2012

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This story was originally published Dec. 31, 2012.

The next-gen sequencing sector kicked off 2012 with a hostile attempt from Roche to take over Illumina and ended with both BGI and Illumina pursuing Complete Genomics, bookending a year that saw a number of business deals — both successful and failed — from companies looking to bolster their positions in the increasingly competitive next-gen world.

The goals of these deals ran the gamut from companies looking to augment certain areas of the next-gen sequencing workflow, such as sample prep or bioinformatics, in order to compete; to companies looking to develop expertise in specific applications like clinical sequencing; to those simply looking to acquire a competitor.

The trend actually began in late 2011, when PerkinElmer acquired Caliper for $600 million to strengthen its automation and sample-prep capabilities for next-gen sequencing (IS 9/13/2011). That followed its purchase of NGS software firm Geospiza earlier in 2011.

PerkinElmer officials have said that they don't intend to compete with manufacturers of sequencing instruments, but rather see an opportunity to improve the front end of the workflow, with sample prep, and the back end, with informatics.

"Given the rapid change in sequencing technologies, we believe that the best way for [PerkinElmer] to participate in this space is as a provider of sample prep technologies, informatics, and services," PE's vice president of strategic marketing and bio-discovery, Alan Fletcher, said at the time.

Even the major sequencing companies — Illumina and Life Technologies — this year sought acquisitions that would expand their market presence, particularly in the clinical arena.

Illumina acquired BlueGnome as part of a larger strategy to build out its diagnostics business. The acquisition will allow Illumina to expand its footprint in the cytogenetics market as well as to gain access to BlueGnome's BlueFuse software (CSN 9/19/2012).

Life Technologies, meantime, acquired Navigenics in order to gain access to the company's CLIA laboratory and its physician portal for interpreting genomic tests (CSN 7/18/2012). The firm also acquired diagnostic developer Pinpoint Genomics and cancer bioinformatics firm Compendia in order to flesh out its diagnostic offerings.

Roche's Illumina Bid

Perhaps the biggest story of the year was Roche's hostile takeover attempt of Illumina. Initially offering $5.7 billion for the firm in January (IS 1/31/2012), Illumina did not bite even after Roche upped its bid to $6.7 billion, calling the offer "grossly inadequate" (IS 2/14/2012).

It appears that Roche may not have entirely given up, however. According to a report in the Swiss newspaper L'Agefi, Roche recently upped its offer to just over $8 billion — a price that the newspaper said Illumina is considering. Neither Roche nor Illumina has confirmed the new bid (GWDN 12/20/2012).

Roche wanted Illumina to shore up its clinical sequencing capabilities. At the time of its initial bid it cited four reasons for the acquisition: an increase of Roche's participation in the sequencing market, a strengthening of its overall technology portfolio, unlocking the commercial potential of the two organizations, and the eventual entry of Illumina's technology into in vitro diagnostics.

Illumina, however, rebuffed the initial offer, saying it was too low, leaving Roche to ponder other options. Some analysts still think that Roche may eventually acquire Illumina, and that negotiations will continue out of the public eye. For its part, Illumina never said that it would rule out any offer to be purchased; just that Roche's offer was not adequate.

Others have speculated that Roche, which said that it was considering other options, could go after a different sequencing firm, such as GnuBio, Oxford Nanopore, or even Life Technologies (IS 4/24/2012).

A GnuBio or Oxford Nanopore acquisition is likely not as appealing to Roche, however, because those technologies have yet to be commercialized, while Illumina is currently the dominant sequencing platform and has already made inroads in the clinical market.

Life Tech has also advanced in the clinical market with its Ion Torrent products, but acquiring Life Tech would likely be much more costly than Illumina. Harry Glorikian, founder and managing partner at Scientia Advisors, previously told In Sequence that such a deal could instead take the form of a partnership in the sequencing space.

Illumina customers — at least those that focus on research — may be relieved that a deal has yet to emerge. Several of them told IS that an acquisition by Roche would likely hamper innovation at Illumina. Jay Shendure, associate professor of genome sciences at the University of Washington, cited both 454 and NimbleGen as examples of companies that were acquired by Roche and have since seen little growth and development (IS 1/31/2012).

Regardless of the outcome of the Roche/Illumina story, it's very likely that Roche will eventually acquire someone in the sequencing market, William Blair analyst Amanda Murphy told IS earlier this year. "I think [Roche has] been pretty clear that they're looking for another platform. … They're going to buy something if they want to do sequencing in diagnostics."

In the meantime, Roche signed an agreement with Precision System Science in late December to develop and manufacture an automated emulsion PCR sample-prep system for its 454 GS FLX and GS Junior instruments, as well as the "sequencing platforms Roche is currently developing."

The goal is to design a system that would automate the entire emulsion PCR process to reduce hands-on time from several hours to a few minutes.

Qiagen Purchases IBS

While Roche's attempt to acquire Illumina was perhaps the most high-profile bid in 2012, one of the more surprising acquisitions was Qiagen's decision to purchase Intelligent Bio-Systems (IS 6/26/2012).

The company has said it plans to incorporate IBS's existing sequencing technology, the Mini-20, with its own DNA extraction methods, sample prep, and bioinformatics to create a platform tailored for the clinical market. It plans to discuss additional details of the system in 2013.

The purchase was surprising primarily because IBS is not an established player in the next-gen sequencing space. The Mini-20 had previously been slated for a 2012 fourth-quarter launch, but so far no customers or data from the machine have been made public.

Furthermore, Illumina and Life Tech are already penetrating the clinical market, so newcomers will have a lot of catching up to do. Vamil Divan, an analyst with Credit Suisse, wrote in a research note at the time that "preliminary insights into the benchtop sequencing technology that Intelligent Bio-Systems currently offers are not overly encouraging."

Additionally, when Qiagen purchased IBS, it also inherited its legal disputes. IBS's sequencing platform is based on technology it licensed from Columbia University's Jingyu Ju. The university is currently suing Illumina, claiming it infringes patents it holds related to sequencing-by-synthesis chemistry. Now that Qiagen owns IBS, it has taken on that lawsuit, and if successful, will be entitled to royalties from Illumina (IS 7/10/2012).

Qiagen is now enmeshed in another suit, spurred by the purchase itself. Azco Biotech, which had agreed to distribute sequencing platforms developed by IBS, is suing both IBS and Qiagen for breach of contract, fraud, negligent interference, and misrepresentation over Qiagen's purchase of IBS, claiming that it is entitled to compensation for its contributions to the IBS sequencing technology (IS 10/29/2012).

Qiagen has remained mostly quiet about its decision to purchase IBS, saying only that in 2013 it will reveal more about the instrument it plans to commercialize. Meantime, however, it has launched its first sequencing-focused products — GeneRead DNASeq Gene Panel kits, including a comprehensive cancer panel targeting over 100 genes, and eight subpanels that will target genes relevant for breast, liver, lung, prostrate, colon, gastric, and ovarian cancers, as well as one for leukemia (CSN 11/7/2012).

The Complete Genomics, BGI, Illumina Saga

The most recent acquisition drama concerns attempts by BGI, Illumina, and an undisclosed third party to purchase Complete Genomics.

In September, Complete Genomics and BGI-Shenzhen said that the companies had agreed to a $117.6 million merger (GWDN 9/17/2012).

Under the terms, BGI would pay $3.15 per share for the company and Complete would continue to operate as a separate entity.

The announcement came three months after Complete Genomics laid off 55 employees, or 20 percent of its workforce, and said that it would be considering "strategic alternatives" (IS 6/5/2012).

The restructuring decision followed several tough quarters for the company, which has struggled to compete against a dominant Illumina. In the first quarter of 2012, its revenues dropped 43 percent year over year. And, while the company secured a number of large orders for whole human genomes — such as a deal with the National Cancer Institute to sequence more than 1,000 genomes and another with Inova Translational Medicine Institute to sequence 1,500 genomes — it also saw several quarters where it lost ground to Illumina, even though Illumina's sequencing services business comprises just a fraction of its revenues.

Additionally, Complete has been burning through cash — $20 million in the first quarter of 2012 — and CEO Cliff Reid told IS at the time that the restructuring would significantly reduce that burn rate.

Two months after BGI made its bid for Complete, Illumina put in an unsolicited bid 5 percent above BGI's proposal (GWDN 11/19/2012). Complete has turned down Illumina's offer, however, citing antitrust concerns.

Additional filings with the US Securities and Exchange Commission have suggested a third party, identified only as "Party J," is interested in Complete Genomics.

Complete seems intent on moving forward with the merger with BGI. The deal is now being examined by the Federal Trade Commission and recently received clearance from the Committee on Foreign Investments in the United States, which is standard when US firms are acquired by foreign parties.

While some have expressed concerns that a merger with BGI could raise national security concerns, Complete's Reid has called those accusations unfounded, and in a letter to employees said that concerns about human genome sequencing being used for biological weapons were "wild and speculative."

"There is also no basis for asserting that Complete or BGI — or any of the other many US institutions or companies that already work with Complete, BGI or Illumina — could or would do anything in any way related to biological weapons development using human genome sequencing," he wrote (GWDN 12/13/2012).

Reid said he expects the deal to close in the first quarter of 2013.

It's unclear what such a deal could mean for Illumina, since BGI is its largest customer, operating more than 100 Illumina machines at its Shenzhen and Hong Kong facilities. BGI has largely declined to comment on the acquisition until it has been finalized, but Xun Xu, head of BGI's research arm, previously told IS that Illumina would still be the organization's "top platform." He said BGI was interested in Complete because of its technology and its focus on high-throughput human genome sequencing for discovery purposes. While other sequencing companies are more interested in designing platforms for clinical use, Complete's technology is "higher throughput and cheaper," he said (IS 10/2/2012).

Customers, too, seem to think a merger will be beneficial. Stanford's Mike Snyder told IS that the merger will keep Complete's technology alive and thus competitive with Illumina and that competition would help keep prices down. Additionally, because different sequencing technologies have different error profiles, "sequencing genomes using multiple platforms is terrific for getting highly accurate human genome sequences," he said (IS 9/18/2012).

However these deals play out over the coming months, 2013 is shaping up to be an exciting year in the sequencing space as the technology matures and companies vie to gain an edge in the ever-competitive, and increasingly lucrative, market.

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