The FTC Wants to Block Illumina’s Deal For Cancer-Test Pioneer – Barron’s

Text size

Antitrust regulators are seeking to block the $7 billion deal by gene-sequencing supplier Illumina to acquire Grailthe company at the forefront of efforts to screen for many kinds of cancer with a blood test. The Federal Trade Commission filed an administrative action Tuesday afternoon to stop the merger, which it alleges would stifle innovation and raise prices for such multi-cancer early detection tests.

In a roughly flat stock market Tuesday, the news sent Illumina stock (ticker: ILMN) down 6.6%, to a $368.96 close.

Grail was spun off in 2016 by Illumina to develop cancer detection tests based on Illuminas gene sequencing technology. Last year, Grail reported that its liquid biopsy blood screen could find up to 50 kinds of cancers, many of which lack any current screen. In September, Grail filed a registration for an initial public offering. But before the IPO went effective, Grail agreed to Illuminas deal to buy the 85% of Grail it doesnt own. Grail plans to launch its test under the name Galleri in the second quarter of this year.

In the FTCs announcement, the agency said that Grail was one of several competitors racing to develop cancer-screening blood tests. Like Grail, the rivals use Illuminas DNA sequencers and supplies, which the FTC said are the industrys only viable option. The agency warned that Illumina would be in a position to delay Grails rivals and raise the price of a critical input.

The value of cancer-screening tests could be enormous. The vast majority of cancers, which account for about 80 percent of cancer deaths, are only detected after patients exhibit symptoms. That is often too late to treat effectively, said the FTCs acting chairwoman Rebecca Kelly Slaughter, in the release. She called such tests a game changer for cancer patients and their loved ones.

Illumina vowed to vigorously defend the deal in administrative court and federal district court. We strongly believe that bringing the two companies together will accelerate patient access to this breakthrough, chief executive Francis deSouza told Barrons. We could save tens of thousands more lives every year than we would if the two companies were separate.

We also believe that this deal will save billions of dollars in U.S. healthcare costs, said deSouza. It is our intent to pass those savings on to patients. Illuminas resources would speed regulatory approvals for Grail and clear a path for Grails rivals to bring their tests to market, he said.

Grails tests wouldnt be the first products that Illumina has marketed in competition with customers who use its sequencers. In 2013, Illumina began offering prenatal genetic tests and, more recently, began offering sequencing-based therapy selection tests for cancer patients. In both cases, deSouza said, competitors have multiplied, sequencing costs have declined, and the market has expanded for everyone.

To allay concerns of Grails cancer-testing rivals, Illumina says that it has offered contractual guarantees of equal access and pricing on its sequencing supplies, with a commitment to drive down prices by more than 40% by 2025.

The FTC wasnt persuaded by Illuminas arguments in the investigation ahead of Tuesdays vote, in which the commissioners agreed 4-to-0 to authorize the staff to seek a temporary restraining order in the U.S. District Court for the District of Columbia. A trial is scheduled to begin in August.

The governments case wont be easy. Illumina says that its combination with Grail is whats called a vertical merger because they compete in separate industries. The government has only gone to court once in the last 40 years to challenge a vertical merger when AT&T agreed to acquire Time Warner. The government lost.

Illumina has come to dominate the market for gene sequencingthat is, reading the DNA code of living thingsby drastically reducing the technologys cost and increasing its speed, over the last decade and a half.

It is those sequencing economies that encouraged the development of genetic screens for cancer. Several companies offer liquid biopsies for already diagnosed cancer patients. They include the Foundation Medicine unit of Roche Holding (RHHBY), Guardant Health (GH), Natera (NTRA), Invitae (NVTA), and Chinas Burning Rock Biotech (BNR).

Racing Grail to perfect multi-cancer early-detection tests is Exact Sciences (EXAS). It paid $2 billion last year to acquire Thrive Earlier Detection, which reported on the first clinical trial of a multi-cancer screen in early 2020.

Write to editors@barrons.com

Read more:
The FTC Wants to Block Illumina's Deal For Cancer-Test Pioneer - Barron's