Do Illumina and Pacific Bio Fit Together?
The following post is not financial opinion of any sort. It is general rambling about various uncertainties that are affecting our decision process, and possibly the same for others in the same boat.
Based on our bioinformatics work, we are generally excited about Pacific Bio sequences, but when we talk to our collaborators about buying instruments, viability of the company itself appears to be a big concern. After all, who wants to get stuck with a million dollar instrument from a company that is no longer in business? Even worse, many senior managers fear the embarrassment of buying an instrument from a company that goes belly up on the day they close the deal !!
We do not know anything about the financial prospects of PacBio other than two publicly available pieces of information - (i) their stock price (not looking healthy), (ii) their financial reports (revenue going down, not up). What happens, when a company goes belly up? Let us speak in general terms, because we do not know much about PacBio.
The very fact that a company is not viable means it earns less by selling its product than it spends on salaries and materials. However, that does not mean the technology itself is unsustainable. Generally, a company has four five major categories of expenses -
(i) salaries of engineers and other employees building the product,
(ii) cost of materials,
(iii) salaries of executives,
(iv) salaries of those working in sales and marketing,
(v) lawyers, accountants, admins and HR, etc.
A sequencing company earns money from two sources -
(vi) Selling the instrument (one big chunk of money),
(vii) Selling chemicals for sequencing (continued source of small income).
If PacBio is not viable and another company buys it, it can cut the costs in tags: [] categories (iii), (iv) and (v), the technology can be made sustainable. Moreover, it can lower the price of (vi) and raise the price of (vii) to improve business.
Earlier we spoke about three way Mexican standoff between Life Tech, Illumina and Roche. In our opinion, PacBio fits with Illumina the best. They have the right contrasts to make the combined business work well.
1. PacBio reads are noisy and long. Illumina reads are short and clean.
2. Illumina reads are great for starting a genome assembly project, and PacBio reads are great for finishing.
3. PACB stocks were high during early in the year and kept falling down. [ILMN] (http://stockcharts.com/h-sc/ui?s=ILMN&p=D&yr=1&mn=0&dy=0&id=p56307647729) stocks were low in Jan and had been mostly going up.
4. IMHO, Illumina has more room for acquisition of other biotech companies than Life Tech and Roche.
5. Researchers already showed how to clean PacBio reads with Illumina. One interesting product could be a combined sequencing library that releases clean PacBio sequences right from the instrument after doing a software cleanup.
