DNA sequencing giant Illumina just bought rival Pac Bio for $1.2 billion — here's why

  • Illumina just paid $1.2 billion for Pacific Biosciences, to help it retain its dominant position in the DNA sequencing space, biotech experts say.
  • Illumina, which is valued at more than $45 billion, makes the machines that companies from 23andMe to Ancestry rely on for their sequencing.
Jay Flatley, executive chairman of Illumina.
Mark Neuling | CNBC
Jay Flatley, executive chairman of Illumina.

Illumina, the company that makes the machines that sequence the vast majority of human genomes, is buying a smaller competitor called Pacific Biosciences for $1.2 billion.

That's the largest ever deal that Illumina has made in more than 20 years, according to Forbes.

The move puts Illumina in a position to continue to dominate the DNA-sequencing space, where it faces few competitors. Anyone who's used Ancestry, 23andMe, Color Genomics, or any DNA-testing services has probably been sequenced on machines made by the $45 billion biotech company.

Illumina is best known for being a key player in driving down the cost of genome sequencing from $100 million in 2001 to less than $1,000 today. That progress far outpaces Moore's Law, a long-standing theory that computing power available for the same price doubles about every 18 months to two years.

Experts say that "Pac Bio", as it's often called in the industry, fills a gap in Illumina's current technology stack.

"Illumina has a dominant position in the business that's the next best thing to a monopoly, but it's all based on short-read technology and being price-competitive," said Preston Estep, a biologist and chief science officer from Veritas Genetics, a biotech start-up.

"But as we move into whole genome sequencing, there are a few things that are hard to do with Illumina's technology."

Pac Bio also develops technology that sequences DNA, but it takes a different approach. Its sequencers look at much longer strands of DNA, known as "long reads," which are useful for things like determining whether both copies of a gene are broken, or just one in two different places — and that's critical to our understanding of disease.

In contrast, Illumina's "short read" technology reads small fragments of DNA and then puts them together in the right order.

"Illumina needs a technology like Pac Bio to increase their capabilities and stay dominant," Estep explained. Estep believes he combination will appeal to customers in the research field, where Illumina has focused its efforts historically, as well as the clinical or medical space, which is key to Illumina's future.

As one observer joked:

Illumina had previously made an investment in a UK-based company called Oxford Nanopore, which also uses long-read technologies to sequence DNA. The two companies ended up in court in a patent tussle.

An Illumina spokesperson could not immediately be reached for comment. In a statement, the company's CEO said the combination of the two technologies "positions us to reach more applications, accelerate the pace of genomic discovery and bolster our innovation engine."

"Through this combination, thousands of researchers will now have direct access to this technology," Michael Hunkapiller, CEO of Pac Bio, explained in a statement.

The deal is expected to close in mid-2019.