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Complete Genomics chief returns fire on CFIUS warning

by William McConnell In Washington  |  Published December 14, 2012 at 8:25 AM
Complete Genomics Inc. chairman Clifford A. Reid is firing back at thwarted suitor Illumina Inc., a rival in the genome sequencing business whose executives have predicted Complete Genomics' acquisition by China's BGI-Shenzhen faces serious problems winning approval by U.S. national security regulators.

Reid said in a new memo to employees that Illumina's recent prediction that the $113 million deal stands a good chance of being blocked by the Treasury Department-led Committee on Foreign Investment in the United States is motivated by a desire to maintain BGI as a customer for its genome sequencing equipment rather than a realistic assessment of the deal's prospects before CFIUS.

"We are surprised by Illumina's assertion that there are national security issues raised by Complete merging with BGI," Reid told his company's employees in "frequently asked questions" about the deal provided to employees this week. The FAQ was included in a Thursday filing to the Securities and Exchange Commission.

Reid noted that BGI is not state-owned like several Chinese companies that have run afoul of CFIUS recently.

"We believe that our merger with BGI raises no national security concerns," he said. "BGI is a private company that is entirely owned by BGI employees as private citizens."

He noted that Illumina has sold genome sequencing equipment and technology to BGI for many years without having issues or concerns about national security raised. In fact, he said, BGI is one of Illumina's largest customers in terms of sales volume, having bought more than 100 sequencing instruments. Reid added that Illumina "continues to supply critical reagents to BGI for genome sequencing at BGI's labs in China, the U.S. and other countries."

The CEO said Illumina, which has boasted that 90% of the world's sequencing output is produced on Illumina instruments, would very much like to prevent a competitor from falling into the hands of Illumina's biggest customer.

Reid's memo appeared a response not to the previous warnings from Illumina but to an op-ed that appeared in Thursday's issue of the San Jose Mercury News in which two members of a government-appointed watchdog called on CFIUS to review the BGI deal closely. In their opinion piece, Michael Wessel and Larry Wortzel of the congressionally appointed U.S.-China Economic and Security Review Commission raised the specter of Complete Genomics' technology being used by governments antagonistic to the U.S. to advance their biological warfare research. The claims mentioned in their article were referenced by Reid, although he did not identify the piece specifically.

In their article Wessel and Wortzel said the BGI transaction "raises very serious national security issues," and laid out how it could bolster biological warfare programs by U.S. adversaries. Referring to a November article in the The Atlantic magazine, they noted that, "[t]argeted genomic weapons are still somewhat hypothetical. But advances in genome and synthetic biotechnology could allow for bioweapons to be targeted at specific populations, groups or, indeed, individuals."

The Atlantic piece reported that BGI hires "thousands of bright young researchers each year" who receive outstanding biotechnology but low pay. "This means that many of its talented synthetic biologists may well be searching for better pay and greener pastures each year, too. Some of these jobs will undoubtedly appear in countries not yet on the (synthetic biology) radar. Iran, North Korea and Syria will almost certainly be hiring," The Atlantic said.

Building on The Atlantic's warning, Wessel and Wortzel said, "Syria, Iran and North Korea's military ambitions have advanced with China's help. Bioweapons and genetic warfare may be next." Going further, they warned that the genetic code of specific genetic disorders prevalent among certain ethnic groups could be unlocked in order to develop a bioweapon targeting an individual U.S. president.

"Unlikely, yes. Impossible, probably not," they wrote.

Reid said the pair's statements were outlandish. "There is absolutely no basis for such a wild and speculative claim," he told his employees. "There is also no basis for asserting that Complete or BGI -- or any of the other many U.S. institutions or companies that already work with Complete, BGI or Illumina -- could or would do anything in any way related to biological weapons development using human genome sequencing."

Reid added that the U.S. government has never raised any concerns about the export of sequencing equipment. "Our sequencing instruments and technologies are not subject to U.S. government export controls regarding China, and to our knowledge neither are Illumina's," he said. "BGI would not be able to do anything with our sequencing instruments that it cannot do already with its Illumina sequencing instruments."

However, in and interview with The Deal Pipeline, Wessel said his concerns are not the stuff of science fiction. "If our concerns are 'wild and speculative' then I presume if CFIUS conducts a strict level of scrutiny its investigation will bear his views out," Wessel said.

Wessel cautioned, however, that biotechnology is among a number of fields experiencing leapfrogs in advancement. He pointed out that the Stuxnet computer virus that targeted Iran's nuclear research would have been thought impossible less than a decade ago. "It's not preposterous to think a similar thing could be done in genetic coding," he said.

Wessel emphasized that he and Wortzel did not say they had enough information to call for the merger with BGI to be blocked. Instead they are demanding only that CFIUS conduct a thorough review.

Tensions between Complete Genomics and Illumina have been escalating since early November. Illumina CEO Jay Flatley on Nov. 20 blasted the board of Complete Genomics for rejecting his company's buyout offer earlier that month and sticking with BGI.

Illumina also has been entangled in patent litigation with Complete Genomics. Illumina sued Complete Genomics in August 2010 in the U.S. District Court for the Northern District of California for infringing on a number of patents pertaining to genome sequencing methods. On Oct. 16, 2012, Magistrate Judge Elizabeth D. Laporte dismissed nine of Illumina's claims, asserting that the patents covered prior art. Litigation continues over three other Illumina claims.

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Tags: BGI-Shenzhen | CFIUS | Clifford A. Reid | Committee on Foreign Investment in the United States | Complete Genomics Inc. | Illumina Inc. | Jay Flatley | Magistrate Judge Elizabeth D. Laporte | Securities and Exchange Commission | Treasury Department

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