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Illumina, PacBio Dispute UK Regulator's Finding That Merger Would Weaken Competition

NEW YORK – Illumina and Pacific Biosciences are disputing the UK Competition and Markets Authority's finding that their merger would significantly lessen competition in the sequencing market.

The CMA had published its provisional findings in October, suggesting that it might block the proposed $1.2 billion acquisition of PacBio by Illumina. In a Nov. 14 response to that report, a redacted version of which was posted on the CMA's website today, Illumina and PacBio wrote that the agency "has failed to establish that Illumina's short-read systems and PacBio's native long-read systems compete." The response argued that the two companies do not currently compete, will not compete in the future, and will still have strong incentives to innovate after their merger.

For example, the firms claimed that the CMA has not shown to what degree Illumina and PacBio sequencing systems are interchangeable and that they compete. "Given the evidence in the record showing that the costs of operating Illumina's systems are an order of magnitude lower than those of operating PacBio's systems, this is a fatal error in the CMA's reasoning," they wrote. Even if their products were partial substitutes, they would "not fall into the same product market," they wrote.

In addition, the CMA "has failed to understand what it has been told by customers," the companies stated. More than 70 percent of customers interviewed by the agency said that the firms' sequencing systems are not interchangeable, they claimed, and the other 30 percent either said long-read sequencing systems have replaced short-read platforms for certain applications or that the two are complementary.

Illumina and PacBio also argued that the CMA "misconstrued the evidence of a limited amount of migration by customers" towards PacBio systems after that platform's accuracy improved. Such migration, they said, is not extensive and it is unidirectional because customers would be unlikely to switch back to Illumina.

Also, they wrote, while it might be true that Illumina and PacBio compete for a share of a customer's budget, that does not mean their systems are close substitutes.

Further, PacBio's technology has "inherent limitations," they argued, "that will prevent it from ever converging with short-read technologies," adding that "it is inconceivable that PacBio's technology could impose a competitive constraint on Illumina in the next decade." For example, they wrote, PacBio's sensors would need to improve at least 1,000-fold in order to match Illumina's throughput, which they claimed "simply cannot be achieved in the foreseeable future."

The parties' response to the CMA's preliminary findings adds to other actions in the agency's merger inquiry. For example, in a remedy proposal to the CMA dated Nov. 7, Illumina suggested offering perpetual, royalty-free licenses to certain PacBio intellectual property to Oxford Nanopore Technologies and other competitors.

On Nov. 19, Oxford Nanopore filed a response to those proposed remedies, rejecting them, and on the same day, Illumina submitted a revised proposal, followed by another response to reject them by ONT on Nov. 21.

Last week, CMA also posted another, undated response to its provisional findings by an independent sequencing consultant, which also questioned its conclusions.