The Federal Trade Commission (FTC) is seeking to block Illumina Inc.’s $7.1 billion purchase of Grail Inc., claiming the deal will “diminish innovation in the U.S. market” for multicancer early detection (MCED) tests, which could be used to flag dozens of tumor types when they are still treatable. Illumina said it will oppose the FTC’s challenge, maintaining the company and Grail “do not compete in any way.”
“Illumina’s commitment to advancing human health by innovating next-generation sequencing [NGS] is unwavering. Improving early cancer detection is the most promising approach to bending the cancer mortality curve,” said Francis deSouza, Illumina’s CEO. “We have a deeply vested interest in ensuring that all organizations have equal and fair access to high quality, reliable and cost-effective sequencing to enhance them to develop breakthrough products, such as liquid biopsy, and make them accessible to the greatest number of patients possible, quickly and safely.”
The FTC has signaled that it intends to take a harder look at health care mergers, though the initial focus appeared to be pharma and the impact on drug prices. It also moved in December to block Illumina’s $1.2 billion bid for Pacific Biosciences of California Inc., leading Illumina to quash the deal.
“If the FTC effectively blocks the [Grail] deal, we would question whether Illumina would ever be allowed to make a significant acquisition even tangentially related to its genomics sequencing business,” wrote Morningstar analyst Julie Utterback.
Less innovation, higher costs
In lodging its complaint, the FTC alleged the takeover of Grail would drive up costs of MCED tests, given Illumina’s position as the only provider of DNA sequencing for the liquid biopsy tests, which analyze a sample of a patient’s blood or other fluid via DNA sequencing. Moreover, even if a viable alternative to Illumina’s NGS platform entered the U.S. market, it would take MCED test developers years to switch over because they would need to reconfigure their tests to perform on the new platform, possibly requiring new clinical trials.
“The MCED test is a game changer for cancer patients and their loved ones,” said Rebecca Slaughter, FTC acting chairwoman. “If this acquisition is consummated, it would likely reduce innovation in this critical area of health care, diminish the quality of MCED tests and make them more expensive.”
Illumina has vowed to “pursue all legal options” to complete its acquisition of Grail, arguing that it does not compete with Grail and is committed to providing “unfettered access” to its NGS technology. The San Diego-based company emphasized its focus on long-term supply agreements with potential competitors and promised to cut prices by more than 40% by 2025.
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In September, Illumina reported plans to acquire Grail for $8 billion in cash and stock, bringing back into the fold a company it spun out in 2016. Since spinning out, Grail has raised nearly $2 billion with promises of a blood test for detection of more than 50 cancers across all stages and is poised to introduce its Galleri liquid biopsy as a laboratory-developed test in the second quarter of this year.
Investors were largely lukewarm to the news, perhaps due to the high valuation of a company with no commercial products.
In a Wednesday note, Cowen analyst Doug Schenkel likened attempts to assess Illumina’s current value to a “bit of a Rorschach test on the market – do you look at Grail as being extremely dilutive to EPS and this a depressant to value or do you acknowledge that Grail has a ‘first mover advantage’ being positioned to launch the first asymptomatic multicancer screening test in the U.S. later this year.”
He estimated the U.S. total available market for MCEDs at about $50 billion and called Grail an important factor in Illumina’s current $400+ per share valuation.
“Combining Grail’s innovative multicancer early detection test with Illumina’s experience and scale will enable more patients in both the United States and worldwide to garner access to Grail’s test faster,” said Hans Bishop, CEO of Grail. “We continue to believe that together we could transform cancer care by catching more cancers earlier.”
FTC concerns may be premature
Puneet Souda, a med-tech analyst with SVB Leerink, questioned the government’s anti-competition argument. “In our view, the multicancer early detection is still years away from becoming a meaningful market, with no revenue in the market today, and multiple hurdles to pass,” including very large trials, FDA approval, U.S. Preventive Services Task Force guideline inclusion and major commercial investment.
FTC commissioners voted 4-0 to issue the administrative complaint and authorize staff to seek a temporary restraining order and preliminary injunction. The trial is slated to begin on Aug. 24, 2021.
Given the timing, Illumina’s plan to close the deal in the second half of 2021 will likely be delayed. Schenkel said a possible path forward would be consent decree that codifies Illumina’s commitment to drive down prices. He also stressed the vertical nature of the deal and lack of clear synergies that would thwart competition.
An Illumina spokesperson said the company believes the Grail acquisition “is highly competitive and will spur additional innovation and investment in the field, just as our acquisition of Verinata in 2013 did for the noninvasive prenatal testing space. This serves as evidence that contradicts the FTC’s position that our entry into a market restricts competition and raises prices.”
She cited an increase in both the number of companies offering NIPT tests and the number of technical approaches, including ones that are not sequencing-based. Meanwhile, the price of noninvasive prenatal testing has declined and reimbursement has increased.
Potential to save many lives
The company sees a similar trajectory if the Grail deal is allowed to proceed, with “many, many more lives saved than if the acquisition doesn’t go through,” the Illumina spokesperson told BioWorld. “By Illumina leveraging its considerable global capabilities, it can both speed access to the test and make it more affordable, more widely.”
During the virtual Cowen Healthcare Conference earlier this month, deSouza said Illumina’s goal is to be the “sequencing engine” that drives different segments, including newer ones like single-cell, spatial or proteomics. “We want to catalyze them by not only being the best sequencer, but make sure they get the other things they need.”
With Grail, Illumina sees a chance to get a piece of the nascent MCED test market, much as Verinata Health Inc. put it at the forefront of NIPT. With 230 patents issued and 170 pending, the Menlo Park, Calif.-based Grail could catalyze Illumina’s own innovation for future diagnostic tests and position it as both an enabler and provider of test services, deSouza said.
Other companies are seeking a stake in the emerging MCED test space. In October, Exact Sciences Corp. announced plans to acquire Thrive Earlier Detection Corp. and U.K. startup Base Genomics Ltd. for $2.56 billion. Other liquid biopsy companies include Gentron Holdings Ltd., Datar Cancer Genetics Ltd. and Inivata Ltd.