October 25th was my birthday so I’ve been on holiday and waited till I got back before writing this post. There’s been lots of other coverage e.g. GenomeWeb, Motley Fool. Keith at OmicsOmics included a bit more on the other NGS players and emerging technologies and is worth a read too.

In the CMA press release last week they state that “the merger will result in a significant loss of competition between the 2 companies, with few alternative providers of DNA sequencing systems remaining.” . Their full report runs to 190+ pages so I suspect only a handful of people will read it in its entirety. The juiciest bits include their analysis of NGS market share, where they asked the major sequencing firms to provided revenue data for 2016 to 2018 and summarise this in Table 6 (reproduced below); and a discussion of the internal documentary evidence they reviewed from Illumina and PacBio. I am sure many of us would love to take a look at these docs but this part of the report is heavily redacted. The CMA assessment is that they paint a consistent picture indicating that PacBio is considered to be a significant competitive threat by Illumina currently, and in the future. In fact the report confirms that Illumina stated to the CMA that they are working on their own long read technology – which will not be a surprise to anyone as Illumina have invested heavily in R&D.

The CMA report includes the NHGRI “Moore’s law” chart showing the precipitous decline in sequencing costs and I’m sorry to report that the $1000 genome is getting very close to celebrating 5th birthday! The report includes comments from customers on Illumina dominant position and the impact this has had on price; above-inflation increases in consumables and the bundling restrictions of HiSeq X. Illumina is THE dominant player in NGS, but they don’t quite have a monopoly and this CAM investigation shows how much they are considering the threat of other technologies.

The CMA’s remit is to answer two questions 1) is a merger situation likely; and 2) if so, will it result in a substantial lessening of competition in the United Kingdom? Both are quite simply answered and the answers should be uncontroversial – Illumina intend to purchase PacBio so a merger situation is likely; and the merger would results in at least one quarter of sequencing goods or services being supplied by one entity (i.e. Illumina). As such the CMA blocking this deal really should not come as a surprise.

The CMA definitions of short read and long read sequencing

This is the topic that has caused most discussion in the community and it is covered in Section 7 (P46 of the report) and the CMA set out their case for considering short and long read as a single market from 7.36-7.47. The CMA appeared to hold that short and long read technologies could be used interchangeably so constituted a single market. In my view they can not and so could be viewed a different (although increasingly similar) markets; sequencing technology continues to develop and one day I am pretty confident we all look forward to long reads with short read per base accuracy and cost. The CMA they seem to have come to the conclusion that because Illumina and PacBio considered each other competitors in the internal documents that they (the CMA) should consider sequencing as a single market. However, in section 7.37 they state that Merger Assessment Guidelines mean a market constitutes a set of products that customers consider to be close substitutes, and I suspect most users would not agree that this is the case (yet) for short and long read sequencing.

Is PacBio a “failing firm”

Illumina and PacBio’s suggest that PacBio is a “failing firm” i.e. one without a future post-merger.  Unfortunately the report is heavily redacted, particularly in the sections covering Illumina and PacBio’s “failing firm” defence i.e. that PacBio would cease trading if the merger does not happen, that there was not a less anti-competitive purchaser (I’m sure the FTC would have something to say about BGI/China buying PacBio), and finally, that the removal of PacBIO (and its assets) from the marketplace would have a less anti-competitive effect than the merger. This last point is particularly important when considering Illumina’s ability to compete in the long-read space without PacBio. I’m sure they’ve been developing technology internally but are unlikely to be anywhere near what PacBio or ONT can do.

Section 6.128 clearly lays out the position of the CMA that PacBio is NOT a failing firm, and that “the most likely situation absent the Proposed Merger [ ] is one in which PacBio would remain an independent entity and the prevailing conditions of competition would continue.” I don’t agree, the cash burn at PacBio has been high and the company has been close to the wire for sometime. If the deal falls through the $100 million from Illumina will be a lifeline – but it may not ultimately keep them afloat long enough.

Summary

My favourite suggestion on Twitter was that the CMA decision was taken to eliminate competition for Oxford nanopore, a UK company. Whilst ONT have sent their own comments into the CMA I doubt very much the decision was motivated by a stronger UK PLC.

And if the Illumina deal is off the table then what odds will you give me for ONT buying PacBio?