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Illumina is In Hot Water with The FTC

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Deoxyribonucleic Acid (“DNA”)
If you failed science class, this whole section might be a pass.

On Tuesday, the Federal Trade Commission announced it is challenging Illumina’s proposed $1.2 billion acquisition of Pacific Biosciences.

What, Why, Who? The FTC is responsible for regulating market fairness and preventing monopolistic behavior through anti-trust law.  In this case, regulators are claiming that Illumina is effectively squashing (a technical term) one of the only up-and-coming competitors in the next-generation DNA sequencing market.

  • They Ain’t Wrong: Illumina has a long, storied history of buying out small companies to corner the market.  They first entered the space in 2006 with their acquisition of Solexa.  Fast-forward to today, they control roughly 80% of the market after a decade of scooping up nascent businesses. 

Back To School
Next-Generation Sequencing is the process used to determine the order of the four basic building blocks of our genetic code, called “bases.”  That information is remarkably useful:Scientists can use it to study the biology of genetically-mediated diseases.
Doctors can use it to create personalized medicine treatment plans.
Justice professionals can even use it to solve crimes.
DNA sequencing was invented in the 1970s, but it wasn’t until the turn of the century that the process was made commercially scalable.  

Since Illumina acquired Solexa in 2006, the cost of sequencing the full human genome has dropped from over $200,000 to under $1,000, vastly expanding the potential applications.

Illumina has been a big driver of that innovation, which has helped make it one of the best-performing stocks of the last decade.  Since the Solexa transaction, shares are up 1,500%.  Try replicating that.   

What About 23andMe?
The controversial genetic testing company is a good example of a use-case for genetic testing.  However, 23andMe doesn’t sequence your DNA, it uses a process called genotyping to determine specific variants in your DNA.  But 23andMe does, in fact, use Illumina technology to run its tests.

The Inside Scoop
Illumina is by no means the only company offering DNA sequencing technology, but they are the largest by a long-shot.  Thermo Fisher, another large player in the biopharmaceutical supply industry, offers competing DNA sequencing technologies.

  • Back to the Deal: The FTC announcement wasn’t the first blow to the transaction. In October, the UK Competition and Markets Authority concluded the deal would materially harm competition in the U.K.  They believe “At this stage, the only structural remedy that is likely to be effective is the prohibition of the proposed merger.” 
  • Money Talks: It looks like the market doesn’t believe the deal will happen, either.  Shares of Pacific Biosciences are trading at $5.38 per share, well below the proposed acquisition price of $8.00 per share.  The FTC will hear the case in August of 2020.  So investors can hurry up and wait.

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