NEW YORK – Pacific Biosciences may finally succeed where Illumina failed in trying to bring short-read and long-read sequencing technologies under the same roof.
Less than two years after its merger with Illumina fell apart due to concerns from US and UK regulators that the deal would concentrate too much of the sequencing market, PacBio is poised to acquire its own short-read sequencing technology. An agreement to purchase Omniome, announced Tuesday morning and worth as much as $800 million, could give the company access to lucrative applications in short-read sequencing, including oncology and noninvasive prenatal testing.
"For too long, the sequencing landscape has been bifurcated into long reads versus short reads. Today marks a shift in that narrative," PacBio CEO Christian Henry, former CFO and chief commercial officer of Illumina, told investors on a conference call to discuss the announcement. "PacBio will be uniquely positioned to be the only sequencing solutions provider for both long- and short-read applications."
Omniome's so-called sequencing by binding, or SBB, technology could be available as soon as the first half of 2023, PacBio suggested. Already, Henry said the company believes its sequencing accuracy is "an order of magnitude greater" than what's on the market now, though he did not specify by what metric. "This is based on Q-score," Todd Friedman, PacBio's director of investor relations, later added in an email. "We believe SBB has potential to reach greater than Q40. Other chemistries are at Q30 or less."
That accuracy could help lower the cost of sequencing in applications where the limit of detection is important, such as cell-free DNA sequencing for cancer screening, minimal residual disease testing, and noninvasive prenatal testing, Henry suggested.
With this technology, PacBio will be able to not only expand its total addressable market and sell long-read sequencing platforms to new customers by bundling products, but also develop new products.
While he wasn't specific, Henry said that "finding new ways to combine technologies into integrated products, that's going to be a really important aspect of this." To this end, the company is expanding its collaboration with Invitae to develop a production-scale sequencer for clinical diagnostics. "We're going to work with [Invitae] to explore those ... opportunities," he added.
"We don’t see there being a combined short-read/long-read instrument; rather there are ways to optimize the workflows on both front end prep and back end informatics to increase compatibility for customers," Friedman added.
The move was generally well received by Wall Street. By late afternoon, shares of PacBio were up 8 percent.
"The acquisition is an exciting and promising move for PACB and the sequencing industry," Canaccord Genuity analyst Kyle Mikson wrote in a note to investors. "Longer term, the combination could establish PacBio as more of a force in the sequencing market, given its solutions could address a broader set of research and clinical applications."
"The Omniome acquisition brings key strategic value and positions PacBio as the only company with both long-read and short-read sequencing capabilities that offer high accuracy, thereby allowing it to tap into a more expanded sequencing market, including high-growth areas such as liquid biopsy," JP Morgan analyst Tycho Peterson noted. "In addition, PacBio's track record in technology development and early momentum in commercial acceleration supports our confidence in the ability to execute on the acquisition."
When Illumina announced its plans to buy PacBio for $1.2 billion in 2018, company officials provided two rationales: complementarity to short reads and specific applications that long reads are better suited for. Short-read sequencing, while accurate and scalable, only generate reads up to around 200 bp long. That means data have blind spots to repetitive regions and structural variants, making whole-genome assemblies more difficult. PacBio's long reads can easily be up to 15 kb or more, and the HiFi protocol recently raised their accuracy up to 99.99 percent.
While Illumina is also interested in establishing whole-genome sequencing in the clinic, the targeted short read market has continued to grow as clinical applications become more widespread. Over the last two years, clinical sequencing has overtaken the research market to provide the largest chunk of Illumina's sequencing consumables revenues.
PacBio has been building its war chest since the Illumina fallout, raising nearly $1.3 billion through stock offerings and senior notes, including a $300 million stock offering announced on Tuesday, so the fact that it has acquired new technology should come as no surprise. Still, with a number of startup sequencing technology firms out there, including Element Biosciences, Singular Genomics, GenapSys, and others, PacBio had several potential acquisition targets.
Omniome was founded in 2013 and has attracted several former Illumina employees, including that firm's former VP of oncology R&D, Richard Shen. Former Roche Sequencing chief Dan Zabrowski is on the firm's board of directors. It had raised at least $120 million since 2018 and has about 120 employees, including 100 on the R&D team.
Henry offered two reasons why PacBio chose this short-reads sequencing technology: Omniome has a working instrument, and its SBB chemistry was the "most differentiated" technology on the market.
Although the firm's instrument was ready for a beta program launch, PacBio plans to pump the brakes a little and add its own touches. "We'll spend a bit of time improving the industrial design and user interface," he said. While the sequencing chemistry is "very far along and very robust," PacBio will work to dial in the clustering to optimize the number of reads per flow cell and will apply its knowledge about enzymology, surface chemistry, dye and optics, and bioinformatics.
Omniome has manufactured approximately 10,000 flow cells for its instrument, he noted. He did not say how much the short-read platform is expected to cost but said that "cost profiles are going to be consistent where short-read sequencing [is] today and where it'll be tomorrow."
During the call, Henry responded to concerns by analysts that the US Federal Trade Commission, which is also trying to block Illumina's acquisition of Grail, might scuttle this deal, as well.
"We obviously did consider FTC risk and exposure as we were working through our diligence," he said. "We believe this drives more competition into the market. ... It’s our belief that this project, in particular, enables more competition in the market, greater choice for customers, and goes to the fundamentals of why FTC exists. We're hopeful that it will be a straightforward process."