Illumina: DNA giant in troubled waters  

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Illumina

A botched acquisition deal and unrest among company investors amid plummeting stocks have plagued Illumina, which was once part of the biotech big leagues that dominated the field of gene sequencing. Now, in fear of losing its ground to other players in the space, it has received a European Commission order to divest Grail, and it might also have to cough up $476 million to pay off a record fine.

The call for divestment comes after a long-drawn-out antitrust case that has weighed down the DNA giant for a while now.

But it didn’t all begin poorly. In 1998, when the company was founded, it aimed to venture into a pioneering field in science.

A frontrunner in gene sequencing

The American company was set up two decades after English chemist Frederick Sanger and his colleagues introduced the chain-termination method for sequencing DNA molecules, popularly known today as the Sanger sequencing method.

Illumina went on to specialize in next generation sequencing (NGS), which, unlike the Sanger method, can sequence millions of fragments simultaneously, per run. The technology can be used in a variety of applications, ranging from discovering RNA variants to sequencing cancer samples, identifying pathogens and studying the microbiome in humans.

It was around the time that Illumina was treading into this industry that Solexa, a spin-off from the University of Cambridge in the U.K., also came into the picture. Solexa had come up with a way to deliver a high yield of error-free reads, a kind of NGS system called sequencing by synthesis (SBS). 

The team at Solexa went on to sequence the entire genome of the same bacteriophage that Sanger had sequenced, but this time around, generated much more sequencing data, and delivered more than 3 million bases from a single run.

Illumina makes gains, acquires Solexa

Then, after Solexa had kicked off its pioneering research and attracted millions in funding, in 2007, it was acquired by Illumina, which was spearheading the gene sequencing market at the time. This $600 million acquisition meant that it would get its hands on Solexa’s 1G Genome Analyzer, which gave scientists the power to sequence 1 gigabase of data in a single run. This also implied that Illumina would then be “the only company to offer both analog and digital gene expression, enhancing Illumina’s rapidly emerging gene expression franchise,” according to a press release.

Around this time, Illumina had ramped up whole genome sequencing (WGS), and became the first to sequence an African human genome, after studying the genome of a Yoruban man from Nigeria. This prompted researchers to look into targeting mutations specific to certain populations, and expedite precision medicine, alongside other flagship programs like PRECISE in Singapore, All of Us in the US, and OurDNA in Australia.

As Illumina’s popularity grew, Swiss multinational drugmaker Roche bid $5.7 billion to buy the company. But because this would topple Illumina’s dominance in the sequencing market, it rejected the offer.

The company also began to expand its services globally. The Illumina iHope program launched pro bono genome testing for children with suspected rare diseases, who come from low- and middle-income families, across the world. And, in 2018, the company – which had set up shop in various parts of the world by now – designed an assay that could identify known and novel tumor biomarkers, as well as debuted its TruSight Oncology Comprehensive (TSO Comp) in vitro diagnostic kit to expedite therapeutic research in Europe.

In the meantime, various other companies looking to tap into the genome sequencing space had sprouted up, like PacBio – formerly known as Pacific Biosciences of California – BGI Genomics and Macrogen, among others. Illumina has also been head-to-head with its rival Thermo Fisher, with which it signed a deal to sell the latter’s Ion AmpliSeq technology, which uses polymerase chain reaction to quickly capture DNA and RNA targets from limited samples, in 2018.

Besides this, German molecular diagnostics company Qiagen went on to acquire Enzymatics, an American company that sold reagents that were used in nearly 80% of all NGS sequencing reactions worldwide, in 2015, a move to potentially dethrone Illumina. Now, Qiagen remains a strong challenger with its portfolio of assay kits and bioinformatics software.

Despite growing competition, Illumina was still the leading gene-sequencing company. In 2018, revenues were up by 25% to $830 million, compared to the $662 million that was brought in during the second quarter of 2017.

FTC blocks Illumina’s PacBio acquisition

But, in late 2019, the biotech giant’s move to acquire PacBio was not welcomed by the U.S. Federal Trade Commission (FTC), which called it “illegal.”

“When a monopolist buys a potential rival, it can harm competition,” said Gail Levine, deputy director of the Bureau of Competition at FTC. “These deals help monopolists maintain power. That’s why we’re challenging this acquisition.”

While Illumina claimed that the proposed $1.2 billion deal would “accelerate the pace of genomic discovery,” the FTC stated that it would “lessen competition in the U.S. NGS market by eliminating current competition, and preventing future competition between Illumina and PacBio.”

PacBio was gaining ground at the time, and was soon to be a close contender, with some customers having already switched from Illumina to PacBio. So, this would harm both consumer prices and innovation within the industry.  

Illumina was then hit with supply chain woes during the COVID-19 pandemic. Although it initially strived to stay ahead of this global issue, owing to raw material shortages and transportation issues, these challenges caught up to the conglomerate

Antitrust laws curb potential Illumina monopoly, stocks drop

Then, last year, the company slashed five percent of its global workforce, to rein in costs amid rising inflation. This came following its decision to cut expenses by more than $100 million this year. But this was not all. The molecular diagnostics company is currently in hot water over a hasty acquisition deal that breached antitrust laws.

The multinational decided to purchase Grail, a cancer test spin out of Illumina, backed by billionaires Jeff Bezos and Bill Gates. As the move would have stifled competition from Grail’s rivals, the FTC intervened, and the European Union (EU) led a probe in 2021. But Illumina didn’t wait to hear back from the EU, and instead bought Grail for $8 billion

Soon after, the FTC sought to undo the deal, which Illumina appealed against, and the EU blocked it. 

Margrethe Vestager, executive vice president of the European Commission, in charge of competition policy, had said: “With this transaction, Illumina would have an incentive to cut off Grail’s rivals from accessing its technology, or otherwise disadvantage them. It is vital to preserve competition between early cancer detection test developers at this critical stage of development. As Illumina did not put forward remedies that would have solved our concerns, we prohibited the merger.”

After going back and forth with the regulatory bodies, the EU slapped a $476 million penalty, for closing its takeover with Grail prior to getting the green light from the EU, earlier this year. Although potentially a cautionary tale for antitrust rulebreakers, the company is now challenging the fine.

Meanwhile, there was trouble brewing within the company as well. A proxy fight ensued when billionaire investor Carl Icahn criticized the Grail deal, and called for the board to vote out the company’s chief executive officer (CEO) at the time, Francis deSouza, who had received nearly double his pay last year, at a time when the company’s market value had fallen. Although deSouza secured enough votes to stay, the proxy battle ended in his resignation and another shareholder being voted out. 

Now, only last week, the European Commission demanded that Illumina divests Grail in 12 months. As per the order, the company can extend this by three months, and can retain up to a 14.5% stake in Grail. If Illumina chooses to go with a capital markets transaction, it would have to capitalize Grail at the time of the transaction with two-and-a-half years of funding based on Grail’s long-term plan. But that’s not to say that the multinational DNA sequencer won’t put up a fight.

If Illumina wins the appeal where it claims that the EU watchdog did not have jurisdiction over the Grail deal in the first place, it gets to keep the spinout. But if it loses its challenge, as well as fails to convince the U.S. Fifth Circuit Court of Appeals, it will have to give the company up.

What’s next for the NGS leader?

Now, as Illumina’s stocks have nosedived, and with PacBio catching up to its competitor, the multinational DNA giant may not be what it once was. With the board appointing newcomer Jacob Thaysen as Illumina’s CEO, former senior vice president of American medtech company Agilent Technologies, this could change things for the better. 

As the former president of Agilent’s life sciences and applied markets group, he comes equipped with experience in the medical tools industry. Under Thaysen’s watch, the division generated approximately $4 billion in revenue and had about 50,000 customers in 2022.

While the role of a CEO is a first for him, investment banking firm Evercore’s analyst Vijay Kumar told Reuters that he “checks all the boxes.” Thaysen plans to “hit the ground running,” as he looks to take on his new role.

But whether the company will bounce back, only time will tell.

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