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In $75M Deal, PacBio will Develop
Clinical Dx Sequencing System and Assays for Roche
 
 
  September 25, 2013
 
By Monica Heger
 
Pacific Biosciences today announced a $75 million agreement with Roche Diagnostics to develop and supply diagnostic products, including sequencing systems and consumables based on PacBio's single-molecule real-time sequencing technology.
 
Roche will have global rights to exclusively distribute the products in the field of human in vitro diagnostics, while PacBio will continue to market its current and future products for research use in all other markets. Under the terms of the agreement, PacBio will receive an upfront payment of $35 million, with an additional $40 million in funding tied to development milestones. PacBio also expects to generate income through the manufacture and supply of instruments, software, and certain consumable products that Roche will market and distribute for clinical use.
 
PacBio CEO Mike Hunkapiller said during a conference call today discussing the agreement that the company began looking for partners in the diagnostics space at the end of last year.
 
He said that certain features of the SMRT technology - its long reads, ability to do methylation, lack of sequence bias - are "ideally suited not just for the technology areas that we can go after in the research space, but in the diagnostic market as well."
 
Additionally, he added, "we're young enough and a small enough company to realize that getting into the larger diagnostic marketplace, particularly the [FDA-cleared] testing environments, is not something that one should jump into lightly. In our case, we just don't really have the expertise in-house to do that and we certainly don't have the marketing clout or support organization within that marketplace."
 
The deal also fits into goals that Roche set to move into clinical sequencing when it established an independent sequencing unit as part of a company-wide reorganization in April (IS 4/23/2013), Dan Zabrowski, head of Roche's sequencing unit, told Clinical Sequencing News.
 
"The aim of the Roche/PacBio partnership is to develop a new sequencing system and consumables for clinical customers that build on [PacBio's] SMRT technology," Zabrowski said.
 
Roche plans to bring the sequencing system and assays through US Food and Drug Administration clearance, a process that Zabrowski said would take at least two to three years.
 
While the sequencing system will be based on PacBio's SMRT sequencing technology, the actual platform will differ markedly from the current version, Zabrowski said, but declined to provide specifications of the eventual clinical version.
 
"What we see in the clinical diagnostic space is that our clinical customers want limited hands on time, ease of use, a system that can handle both closed as well as open channels, and a menu that can be expandable," he said. Zabrowski declined to disclose what disease areas and assays it would pursue first, and said those decisions would be driven by both the technology itself as well as by customer needs.
 
Zabrowski said that Roche has already had general discussions with the FDA about next-gen sequencing within a clinical diagnostics setting, and plans to continue those conversations with a specific focus on the PacBio technology. "We plan with PacBio to go to the FDA and talk specifically about a registration pathway for this system," he said.
 
Aside from bringing the system itself through FDA clearance, "one of the key questions that we will have is, 'What is the regulatory pathway to bring assays and content to the system?'" Zabrowski said. "We need to make sure we're aligned with the FDA on specific requirements to achieve various types of content that we foresee going onto the system." For instance, "one could envision assays that would be a single test to assays that would cover a number of genes in a panel." Under the terms of the agreement, Roche and PacBio will work together to develop the system and assay, but Roche will have "final decision making" on the menu of assays and assay content, Zabrowski said. Product development of the system and assays will be "governed by a joint steering committee with equal representation from both companies."
 
During the PacBio call, Hunkapiller indicated that at least initially, the clinical assays would be targeted panels, rather than whole-genome or exome sequencing tests.
 
"The concept of using whole-genome sequencing as a diagnostic tool is probably further off than people think," he said. " The majority of [the diagnostic] market over the next several years will be more targeted type testing." Additionally, while Roche will retain exclusive rights to market the sequencing system and assays for clinical use, if it also develops a competing next-gen sequencing system for clinical purposes, it will lose that exclusivity, Hunkapiller said during the conference call.
 
Echoing previous comments from Roche, Zabrowski said that the company does not plan to develop its 454 systems - the GS FLX+ and GS Junior - for clinical purposes, but would continue to develop them for life science research applications.
 
Additionally, he said that sequencing technology is only one part of bringing a platform through FDA clearance and that over the coming months Roche would be making additional announcements about partnerships in the areas of sample prep and bioinformatics.
 
Today's deal should be a boon for PacBio, which has struggled financially. In September 2011, the company cut 28 percent of its workforce, or 130 employees, due to a slower-than-projected adoption rate of its PacBio RS system (IS 9/20/2011). While the company's cash burn rate has stabilized since the restructuring, it still continues to operate at quarterly losses of over $20 million.
 
The agreement may also put an end to speculation that Roche is continuing negotiations to acquire Illumina. Roche made a $5.7 billion hostile takeover bid for Illumina early last year (IS 1/31/2012), which Illumina rejected as "grossly inadequate" (IS 2/14/2012).
 
Since then however, analysts and other experts in the field have speculated that negotiations would continue privately. Today's announcement, however, should "remove any remaining doubt that Roche has moved on to greener pastures," Tim Evans, an analyst with Wells Fargo Securities, wrote in a note.

 
 
 
 
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