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Pacific Biosciences Targets China Clinical Market to Rebound After Illumina Deal Falls Through

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NEW YORK – Pacific Biosciences is planning to enter the Chinese clinical sequencing market and is growing its sales and marketing organization as it emerges from a failed buyout bid by Illumina.

In the first investor conference call in over a year on Thursday, to discuss the firm's Q4 financial results, PacBio CEO, President, and Chairman Mike Hunkapiller announced that the firm has signed a non-exclusive partnership and distribution agreement with China's Berry Genomics. Under the terms of the deal, financial and other details of which were not disclosed, Berry will distribute the Sequel II single-molecule sequencing system and consumables in China and will pursue regulatory clearance for the instrument for clinical applications.

"Outside of China our clinical efforts in 2020 are to support our customers as they continue to build out their own laboratory-developed tests validated for the Sequel and Sequel II platforms," PacBio said in an email.

Hunkapiller said PacBio would also greatly expand its global sales and marketing organization and pursue improvements in sequencing chemistry and sample preparation protocols. Though company officials did not say how much they would invest in operations over 2020, PacBio has already begun listing job openings for sequencing sales specialists in the US and Europe.

Though Hunkapiller said that PacBio had operated independently from Illumina throughout 2019, because it was legally required to do so, the shadow of its former suitor loomed over the call.

For example, Hunkapiller compared his firm's Berry deal to Illumina's 2014 partnership with Berry, under which the two companies co-developed a clinical sequencing system based on Illumina's NextSeq 500 that was cleared by China's regulatory authority the following year.

Additionally, when discussing the possibility of future partnerships, Hunkapiller said the company's plan "could include Illumina, it could not." PacBio's termination agreement with Illumina, signed in early January, "puts no constraints on us relative to other partnerships, distribution deals, or whatever with third parties," he added.

Regarding the termination agreement, Hunkapiller said the firms abandoned the deal because the antitrust review process "was taking longer than either we or Illumina originally expected." Also, PacBio spent approximately $20 million in legal and other fees related to the deal over 14 months. "We did not know how much longer it could take, nor could we predict with much certainty what the eventual outcome would be," he said.

PacBio's clinical ambitions should come as no surprise, given that Illumina expressed interest in pushing long-read sequencing in that direction in multiple geographic markets. When Illumina announced the plan to buy PacBio in 2018, CEO Francis deSouza mentioned that clinical sequencing for structural variant identification and HLA typing in transplant genomics were potentially valuable applications.

Also, following their $75 million agreement in 2013, PacBio and Roche Diagnostics had planned to develop a single-molecule sequencing system for diagnostics, however Roche terminated the deal in late 2016.

PacBio has been floating the idea of pursuing the Chinese clinical market through a partnership since at least 2017, but the firm does not appear to be pushing specific applications. "Assays for the clinical market based on [single-molecule, real-time] sequencing are being developed by our customers globally," the firm said in an email. "Oncology, reproductive medicine, rare disease, and neurodegenerative disease have emerged as areas of active development by our customers."

Hunkapiller noted that recently, the Chinese market has accounted for about a quarter of total revenue and that the novel coronavirus 2019-nCoV and the outbreak centered in Wuhan could make the entire country "largely inaccessible until the outbreak subsides."

During the Q&A portion of the call, Hunkapiller noted that Berry, a longtime customer and provider of PacBio sequencing services in China, was essential to entering that market "where you have to operate through a Chinese entity." Still, the terms of their agreement leave PacBio open to pursue other partnerships in China and elsewhere.

"That deal is not exclusive so we're free to discuss even similar deals in China," he said.  Regarding partnerships in general, he said, "we'll look carefully whether it makes sense to do some of those things from an economic perspective."