PacBio Acquires Short-Read Sequencer Omniome for $800M
By Allison Proffitt
July 20, 2021 | Pacific Biosciences announced this morning that it has signed a definitive merger agreement under which it will acquire Omniome, a San Diego-based company developing a highly differentiated, proprietary short-read sequencing platform capable of delivering high accuracy.
“This acquisition represents just one step towards PacBio becoming the most advanced solutions provider for understanding biology,” said Christian Henry, PacBio’s CEO and President on an investor call this morning.
The deal includes upfront consideration of approximately $600 million consisting of 9.4 million shares of PacBio common stock and $300 million in cash, plus an additional $200 million in cash and stock payable with the first commercial shipment of an SBB sequencer. The overall transaction is valued at approximately $800 million, has been unanimously approved by the Boards of Directors of both companies, and is expected to close later this quarter, subject to customary closing conditions and regulatory approvals.
If the merger closes, PacBio will have both long-read and short-read sequencing platforms. “By combining our industry-leading, long-read, HiFi sequencing technology with the highly accurate short read sequencing platform, we move closer to achieving [our] mission as we will now be able to serve all parts of the sequencing market,” Henry said.
PacBio’s long-read sequencing technology serves infectious diseases, plant and animal genomics, and human genetics research, and Henry called it the fastest growing area of sequencing research. But short-read sequencing is entrenched in commercial areas such as early-stage cancer screening, cancer recurrence monitoring, single-cell sequencing, clinical panels and non-invasive prenatal screening.
“While growing slower than long-read sequencing, short-read sequencing opportunities already represent a multi-billion-dollar revenue opportunity today,” Henry said, estimating that short-read applications would more than double PacBio’s current addressable market.
“By combining Omniome, PacBio will address both the fastest growing and the largest sequencing applications. Together we will strive to provide the most complete and accurate solutions to enable our customers success across the entire sequencing landscape.”
Short Read Round Two
That value proposition should sound familiar. In November 2018, Illumina and PacBio signed an acquisition agreement to add PacBio’s long-read technology to Illumina’s short-read sequencing portfolio for $1.2 billion. The deal didn’t survive regulatory scrutiny. In January 2020, the acquisition was called off. PacBio walked away with a $98 million termination fee.
Of course Omniome is not Illumina.
“In a growing landscape of sequencing providers, we see Omniome’s sequencing by binding or SBB chemistry as the best technology to meaningfully participate in short read applications,” Henry said.
Omniome was founded in 2013 by Illumina alum Kandaswamy Vijayan. Vijayan has not been with the company for several years. Ken Song, the company’s executive chairman who joined in 2017, was formerly the cofounder and CEO at Ariosa Diagnostics. Richard Shen, the company’s president, was promoted to that role in 2021. In a 16-year career at Illumina, Shen served as VP of Oncology Research and Development among other roles.
Omniome currently has about 60 patents and 120 employees. The company has raised $145M, with its most recent funding round, a $60M Series C, closing in January 2020 led by Madrone Capital Partners. Omniome has manufactured 10,000 flow cells to date, and its instrument is current ready for third-party validation, Shen said, during the call.
Accuracy is the Omniome differentiator, Shen said. Omniome’s SBB chemistry uses more natural nucleotides and combines the binding and extension steps usually used in short-read sequencing offering a high signal-to-noise ratio and resulting in less molecular scarring. By focusing on the binding event, SBB technology is able to provide precision of nucleotide and DNA matching by leveraging the polymerase’s natural matching ability.
“By focusing on binding instead of incorporation, we’re able to create a growing strand during extension that is scar-free. These features allow for increased sequencing accuracy, driving higher fidelity experiments, and broadly enabling clinical sequencing,” Henry said on the call, already taking ownership of the Omniome technology.
The result, he said, is high-accuracy sequencing that will be particularly useful in detecting low-frequency variants in applications such as cancer screening, therapy optimization, minimal residual disease testing, and prenatal genetic testing. The higher accuracy of the Omniome platform, Henry clarified, will also drive down costs and improve speed because results are so reliable.
“We put a lot of sweat and some long nights into building Omniome. Now I believe the technology and development programs are at the right stage to leverage PacBio’s expertise to bring across the finish line and insert into a global, commercial channel,” Shen said.
The companies expect the first commercial launch of an SBB sequencer to be no earlier than the first half of 2023.
Invitae Agreement Expansion
The successful close of the Omniome acquisition will also trigger an expansion of PacBio’s collaboration with Invitae, Henry said, to develop the SBB platform at scale for applications requiring high depth of coverage and low limits of detection.
At this year’s J.P. Morgan Healthcare Conference, PacBio and Invitae announced a multi-year collaboration to begin development of a production-scale high-throughput sequencing platform leveraging the power of PacBio’s highly accurate HiFi sequencing to expand Invitae’s whole genome testing capabilities. At the time, Henry called it, “perhaps one of the most exciting collaborations we’ve entered into as a company.”
“We anticipate developing a sequencer with a scale that’s unprecedented for long reads and will enable us to deliver a medically-relevant genome at prices substantially lower than $1,000,” he said in January.
Today, Henry outlined a vision for PacBio and Invitae to work together to apply SBB chemistry to cancer diagnostics and pathogen detection, Henry said, as well as explore ways to integrate SBB with PacBio’s HiFi sequencing for clinical applications.
A Combined Outlook
Henry sees the Omniome acquisition as not only opening a new short-read market to PacBio, but also expanding opportunities for HiFi sequencing and the Sequel platform, which currently has an install base of 282 platforms.
He also expects accelerated demand for the Sequel platform as PacBio becomes “the partner of choice, offering integrated solutions for any customer need” and “better [managing] the transition from short read approaches to long read approaches.”
The company R&D groups will be combined, Henry suggested, saying that the two research groups will work together, “to tackle some of the most challenging problems in biology by leveraging each other’s respective strengths. Omniome adds deep expertise in flow cell development, and PacBio has extensive experience working in enzymology, surface chemistry, and optics. I believe the cross-pollination of both of our R&D teams will be a true synergy in unexpected ways.”
Henry reported that the Omniome sequencing chemistry and instrument work well; PacBio will be working to refine user interface and the industrial design and improve the clustering methods to balance accuracy and cost. The informatics journey, he joked, never ends. He expects to include the PacBio SMRT Link analysis software at the Omniome launch, which positions the company well for future integrations between short- and long-reads.
Omniome also does not have built out platform manufacturing or commercial capabilities. PacBio will manage that, and Henry highlighted that PacBio is positioning itself to offer and support a broad product portfolio, providing more value to customers across the broadest spectrum of applications.
The “broad spectrum”, though, is sometimes the problem. When asked about his take on the likelihood of regulatory success, Henry was, of course, sunny.
“We believe that this transaction, actually drives more competition into the market fundamentally. Having a short-read sequencing technology that is well-capitalized with an experience management team can drive more competition into the market. We also believe for example that the announcement of our intent to extend the Invitae collaboration demonstrates that customers desire to have alternatives. We think that will be useful.”
Henry closed with a rallying cry.
“In life sciences, scale matters. Omniome’s technology will enable us to reach more customers with a differentiated chemistry that can drive greater discovery, especially in high-growth clinical markets,” he said. “For too long, the sequencing landscape has been bifurcated into long-reads vs short-reads. Today marks a shift in that narrative. PacBio will be uniquely positioned as the only sequencing solution provider for both long and short read applications.