BGI-Shenzhen on Monday completed its long-awaited $117.6 million acquisition of Complete Genomics, three days after the Chinese sequencing giant completed its $3.15-a-share tender offer for the California company, and some six months after the deal was first announced.
The deal survived the scrutiny of Chinese and U.S. officials: The State Administration of Foreign Exchange of the People's Republic of China gave its nod on March 12, some two weeks after the sign-off from China's Ministry of Commerce.
On January 7, the Federal Trade Commission completed its antitrust review of the transaction via early termination of the Hart-Scott-Rodino waiting period. A week earlier on January 31, the Committee on Foreign Investment in the U.S. (CFIUS) also approved the deal, just two weeks after two members publicly called for “judicious screening” of the acquisition on economic and national security grounds.
“We are still evaluating the transaction and, as is often the case with these transactions, may only find out afterwards what a mistake the sale might have been,” one of the two CFIUS members, Michael Wessel, told GEN on January 9.
The other member, Larry Wortzel, Ph.D., offered his evaluation a day earlier, telling GEN: “I am satisfied that the Committee on Foreign Investment in the United States exercised the proper due diligen[ce] in its deliberations, and have no comment on the decision.”
Seeking Strictest Scrutiny
Writing in the Mercury News of San Jose, CA, Wessel and Dr. Wortzel declared that CFIUS “must review this proposed purchase with the strictest scrutiny.”
“Judicious screening of Chinese investment is appropriate, since the impact of investment by state-controlled companies isn't yet clear,” the two wrote December 12. “Will this be another cash-and-carry investment where China buys the assets and technological know-how, only to pack it up and take it home? Or will it continue to operate Complete Genomics' operations here in the U.S. and allow the fruits of any developments to create opportunity here at home?”
BGI has said it would keep Complete Genomics in the U.S., where the company is headquartered in Mountain View, CA, and operate it as a wholly owned subsidiary. Clifford Reid, Ph.D., will remain CEO of Complete.
Wessel told GEN that CFIUS appears to have given the deal strict scrutiny: “The fact that CFIUS utilized the longer transaction review procedures I hope indicates that they did just that.”
Wessel and Dr. Wortzel cited several chilling scenarios laid out in a November article in The Atlantic, among examples of how the science behind sequencing can also possibly be used for harm someday. Among those scenarios: Billions of virus particles activate on contact with the president’s DNA, killing him. Drugs that effectively target cancer are turned instead against target healthy retinal cells, causing blindness.
“Research in this field may yield miraculous cures, but may also be the building blocks of 21st century bioweapons,” Wessel and Dr. Wortzel concluded. “As the wave of Chinese investment begins, we must not ignore the risks. Scrutinizing Chinese investments—especially those involving next-generation technologies and capabilities—is just plain common sense. This sale may not be an innocuous investment in science.”
Disagreeing with that assessment is George M. Church, Ph.D., professor of genetics at Harvard Medical School, and an adviser to both BGI and Complete Genomics.
“If your goal were to do something at a national security level, you would not do it in such plain sight as to be a multinational clinical lab. You would instead be a surreptitious spy organization, where you would go in, you’d get a sample, and you’d do it in private. You wouldn’t set up this whole multinational clinical organization,” Dr. Church told GEN. “Barack Obama is not necessarily going to be sending his DNA out to BGI or CGI [Complete Genomics]. If you wanted Barack Obama’s DNA, you’d follow him around with a vacuum cleaner.”
It’s hard, he said, to know what nationalism is or pinpoint national interests today when almost every major company is multinational, and many multinational companies are bigger than nations: “If this is keeping one of our prized companies afloat, then anybody who comes to their rescue should be welcomed.” As for security concerns, Dr. Church rejected the view that the company posed a threat, saying BGI is no different from other businesses and institutions that emphasize privacy in their handling of data, especially patient-related information.
Yet Washington—officially, at least—professes to be wary. “Gene mapping/sequencing” is among biotech technologies listed on the nation’s National Critical Technologies List. And in its “Report to Congress on Foreign Economic Collection and Industrial Espionage, 2009–2011,” the U.S. office of the National Counterintelligence Executive predicted: “We judge that the governments of China and Russia will remain aggressive and capable collectors of sensitive U.S. economic information and technologies, particularly in cyberspace.”
BGI’s purchase of Complete Genomics fits nicely with China’s desire to grow biotechnology, one of seven strategic sectors identified in the 12th Five-Year Plan (2011–15). On January 6, China’s State Council committed to above-20% annual biotech growth this year through 2015, with the goals of boosting domestic consumption and raising industry revenue by 400 billion yuan ($64 billion) from 2 trillion yuan ($321.2 billion) in 2011, according to state-owned China Daily.
Chinese companies like BGI are eager to snap up U.S. companies. According to the nonprofit Peterson Institute for International Economics, 2012 was a record year for Chinese investment in the U.S. Chinese firms completed U.S. deals worth $6.5 billion, up 12% from the previous record of $5.8 billion in 2010.
BGI has expanded its footprint in the U.S. in recent years. One example: On January 10, BGI and Children’s Hospital of Philadelphia (CHOP) said they will collaborate on research into next-generation sequencing and analysis of pediatric brain tumors, in support of the four-hospital Childhood Brain Tumor Tissue Consortium.
The consortium will use the BGI@CHOP Joint Genome Center, which expanded in September to clinical next-gen sequencing services, and opened when BGI and CHOP launched their partnership in October 2011. That same month, BGI joined University of California, Davis, in opening a sequencing center at the UC Davis Health System campus in Sacramento, with plans for a permanent BGI@Davis Joint Genome Center that the partners say will focus on food security, human and animal health and wellness, biodiversity, and environmental health.
BGI expanded stateside when it opened a facility in Cambridge, MA, in May 2010. Four months later, it trumpeted a “working relationship” with Merck & Co. that blossomed the following year into a partnership to discover and develop biomarkers and genomic technologies. And last year, BGI began working with Agilent Technologies to develop methodologies for next-generation genome-wide association studies.
Effect on Illumina
In biotech, the Complete Genomics acquisition raises speculation that BGI will either buy fewer of Illumina’s sequencers or grow into a rival for sequencing supremacy. As BGI pursued federal approvals, Complete Genomics fended off a competing $123.5 million bid from archrival Illumina—a 15-cent-per-share premium from BGI’s $3.15-per-share offer.
While at least one analyst said the deal made sense, reasoning that Illumina will outperform the market in 2013, Complete Genomics balked, citing what it called a substantial likelihood that such a deal would fail to receive FTC antitrust clearance. In a letter from chief operational officer Ye Yin to Complete Genomics, BGI denounced Illumina’s offer as “a thinly veiled attempt by Illumina to disrupt and interfere with our merger agreement in order to prevent Complete’s technology from posing a competitive threat to Illumina’s market dominance.”
Illumina cited economic-interest, privacy-protection, and national-security arguments in its unsuccessful effort to stop BGI’s acquisition of Complete Genomics, which ended with a January 8 filing to the U.S. Securities and Exchange Commission.
One likely cause for Illumina’s concern: Complete Genomics over the summer unveiled its Long Fragment-Read (LFR) technology, which the company expects will speed up clinical adoption and use of whole-genome sequencing. Complete Genomics says LFR is at least 10-fold more accurate and more cost effective since it uses less DNA than any existing sequencing methods. Dr. Church was among 30 co-authors who detailed the technology and its promise in a Nature Biotechnology paper published in July.
“The ability to distinguish zero working copies of a gene from one working copy in the case of two mutations seems to me crucial for clinical applications, and so the LFR method could/should indeed get Illumina's attention,” Dr. Church said.
Illumina, he said, “had kind of a captive audience with companies like BGI, where all they could do is buy Illumina machines. If they now can go to Complete Genomics, they may never order an Illumina machine. Now BGI is not such a big customer that Illumina should care, but it might be a reputational thing. If their largest customer goes somewhere else, even if it’s in a service mode, than maybe everybody else will say, ‘Maybe we should go with the same service.’ So they’ll all stop buying machines and start going the service route.”
Asked whether other sequence makers can expect more BGI business once it absorbs Complete Genomics, Dr. Church said, “I don’t think there’s a gigantic barrier to them if the next thing they might want to do is get an Oxford Nanopore involved. The only reason BGI had to make an acquisition-type deal was that CGI didn’t make their instrument available commercially. With Nanopore and Illumina and so forth, since those will all be commercially available, BGI can always acquire those by the more conventional route.”
The bigger BGI grows, however, the more likely it will see more scrutiny from Washington, if more for antitrust concerns than the security or economic-interest questions in which officials have shown only limited interest, if the Complete Genomics deal is any indication.