Pacbio is in it for the long run

Pacific Biosciences of California specialises in long-read technology – a means of sequencing sizeable strands of DNA that is more accurate, though more expensive, than more widely-used short-read approaches. But a bigger rival wants a piece of the action.

This month the sequencing giant Illumina unveiled plans to move into the long-read space. Pacbio’s chief executive, Christian Henry, is unfazed, however. “To be honest with you, I don’t think it’s going to affect our business in the least,” he tells Evaluate Vantage. 

This, he says, is because while the tech Illumina is developing can sequence longer strands than its current systems – around 10,000 bases compared with a few hundred – it is nowhere near as long as those Pacbio can assess, which run up to 50,000 bases. And more than that, it is a question of methodology.

Illumina’s long-read tech, dubbed Infinity, is seen by sequencing experts as “synthetic long read” – it is, like Illumina’s short-reads, a case of stitching short fragments together informatically, albeit in a different and hopefully more accurate way. By contrast, Pacbio’s tech is seen as “native long read”.

All about that base

Because Infinity still uses short strands, Mr Henry says it is less able to deal with quirks like tandem repeats – sequences of two or more repeated DNA bases that lie next to each other on the chromosome. Neither can it cope easily with epigenetic changes such as methylation, which is becoming increasingly important in settings including cancer diagnosis; methylated cytosine is sometimes referred to as the “fifth base”.

What Illumina’s move does show is a growing recognition of the importance of long-read technology. Three years ago Illumina tried to buy Pacbio for exactly this capability; the deal having been vetoed by the FTC, Illumina is clearly trying to get there via other means. 

“It’s an indication that we are gaining some traction in the market – we’ve definitely captured their attention commercially,” Mr Henry says. 

Other competitors are also growing in threat. Oxford Nanopore Technologies, another long read specialist, went public last year. Its technique is completely different to that used by Illumina and Pacbio, but it is, like Pacbio’s, generally more expensive and considered more accurate than short-read technology.

Mr Henry says Oxford Nanopore going public is a positive for both Pacbio and the space in general, since it draws the market’s attention to long reads. It is also good for another reason, he says. 

“It gives us deeper insight into where their revenues are coming from, who their customers are. They have been very, very private in the past,” he says. He believes the two groups are not competing for the same customers: “We’re much more focused on the clinical side – large-scale plug and play sequencing – and they’re much more focused on what they call the explorer community.”

Illumina has been bigger than Pacbio for many years, and is larger still since its acquisition of Grail last year. Even Oxford Nanopore’s market cap now outstrips Pacbio’s.

Mr Henry’s approach to growth is two-pronged: a greater focus on sales, and the pursuit of collaborations. On the latter point, the group has just expanded its agreement with Invitae under which it is developing a new sequencing platform to aid Invitae’s whole genome testing.

Pacbio also has a partnership with Chinese firm Berry Genomics to develop a desktop sequencer, with Berry committed to purchasing at least 50 systems for distribution in China. Another collaboration with Google will explore using Google’s machine learning software to both improve accuracy and reduce computing power requirements, so that the software can be integrated into Pacbio’s machines. 

The long term 

The company last turned a profit in the fourth quarter of 2020, and that was largely due to the $98m merger termination fee it received from Illumina. Since then it has been lossmaking, though its losses narrowed quarter on quarter throughout 2021. 

In that time its revenues have grown impressively, the preliminary 2021 figure of $131m representing a 65% increase from 2020. Mr Henry says this is a result of investing in a commercial infrastructure.

That said, Pacbio’s share price performance has been pretty wretched, the stock falling more than 70% over the past year. Mr Henry blames the markets, citing “a broad rotation out of the space”, but Illumina is down only around 25% in the same time frame.

Depressed share prices are often a precursor to acquisitions. Mr Henry downplays the suggestion, saying that he is focused on creating “a billion dollar-plus revenue company that’s highly profitable”. But he acknowledges that there might be other potential buyers out there.

The market’s interest in long read tech is growing, as Illumina’s move shows. Pacbio's next grapple with an acquirer could have a different outcome.