Dive Brief:

• Illumina has pulled out of its planned $1.2 billion takeover of Pacific Biosciences of California, the genetic sequencing giant said Thursday.

• The action follows resistance to the takeover from the Federal Trade Commission and other regulators on the grounds that it would reduce competition.

• Illumina will pay $98 million to cancel the deal but could recoup that outlay if another company strikes a deal to buy PacBio before October. Cowen analysts listed Agilent Technologies, Danaher and Thermo Fisher Scientific as potential buyers of PacBio.

Dive Insight:

Significant doubts about Illumina’s ability to complete the takeover of PacBio emerged last year, when the U.K. Competition and Markets Authority warned the acquisition could hurt competition. Illumina and PacBio argued that, as specialists in short and long-read sequencing, respectively, they operated in different fields. The agency disagreed.

When the FTC weighed in last month by ruling the deal illegal on competition grounds, analysts were braced for the cancellation of the takeover. Illumina bought itself more time after the FTC ruling by offering to pay PacBio to extend the deal timeline, but has now given up.

The sequence of events left analysts at Cowen unsurprised by the outcome but puzzled by aspects of Illumina’s handling of the situation. 

"While the timing is a bit of a surprise given that [Illumina] just opted to extend the deadline to close, the outcome is not given regulatory challenges. It is also unclear why [Illumina] extended the deadline ~2 weeks ago, after a scathing rebuke from the FTC," the analysts wrote in a note to investors.

The termination leaves Illumina and PacBio to plot independent futures, although there remains scope for the companies to collaborate. PacBio originally approached Illumina, and 22 other parties, to discuss a strategic partnership but the talks escalated to a takeover agreement late in 2018. The termination of the takeover means PacBio could renew its interest in a strategic partnership with Illumina or another party.

When the takeover was first announced, the Cowen analysts said Agilent Technologies, Danaher and Thermo Fisher Scientific may also be interested in buying PacBio. However, a subsequent regulatory filing by PacBio revealed Illumina was the only party that tried to buy it in 2018. A commercial partnership targeting the Chinese market with the unidentified Party A is the only other potential deal listed in the timeline leading up to Illumina’s takeover offer. 

PacBio began looking for a partner to expand distribution of its products and access money for R&D and commercialization. Those needs could drive it to look for another strategic transaction now that the Illumina deal is off. 

The situation is clearer for Illumina as PacBio was a relatively small piece of its plans. However, the protracted, ultimately unsuccessful deal still has implications for the company. As the Cowen analysts note, the opposition to the PacBio deal from FTC and its peers suggests Illumina "will be very limited in pursuit of sequencing assets" as they are likely to trigger concerns about competition.