Illumina Bid for Cancer-Screening Firm Grail Challenged by FTC

The FTC is challenging Illumina's plan to acquire the stake it doesn't already own in Grail, a maker of a noninvasive biopsy test that screens for cancer early on.
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The Federal Trade Commission is challenging Illumina's  (ILMN) - Get Report plan to acquire the stake it doesn't already own in Grail, the producer of a noninvasive biopsy test that screens for early signs of cancer.

The Wall Street Journal reported that the U.S. agency's move is unusual because the deal is a so-called vertical merger, in which the two companies coming together do not directly compete with one another.

Illumina shares fell when the news came out on Tuesday afternoon, finishing the trading session off 6.6% at $368.96. They were down 0.4% after hours.

The FTC said it had filed an administrative complaint and authorized a federal court lawsuit to block the deal, which is valued at $7.1 billion. Illumina founded Grail in 2016 and owns 15% of the company.

The deal to acquire the rest, which was unveiled in mid-September, was particularly noteworthy because Grail was backed by Amazon  (AMZN) - Get Report founder Jeff Bezos.

In a statement to TheStreet, Illumina said it would “vigorously defend its acquisition of Grail because we strongly believe it is in the best interest of patients.”

The FTC said in a Tuesday statement that Grail's technology "can screen for multiple types of cancer in asymptomatic patients at very early stages using DNA sequencing."

The acting chairwoman of the agency, Rebecca Kelly Slaughter, said in the statement that most cancers, accounting for about 80% of deaths from the disease, are detected only after patients exhibit symptoms. "That is often too late to treat effectively," she said.

"Illumina is the only provider of DNA sequencing that is a viable option for these [multi-cancer early detection tests] in the U.S.," the agency says. 

The complaint will allege that the proposed acquisition "will diminish innovation in the U.S. market for multicancer early detection tests," the FTC statement says.

A number of Grail's competitors are also trying to develop these liquid biopsy tests, which analyze a patient's blood or other fluid.

"As the only viable supplier of a critical input, Illumina can raise prices charged to Grail competitors" for certain proprietary instruments and consumables; impede those rivals' R&D efforts, or refuse or delay reaching license accords that all developers of these tests need to distribute their tests to third-party labs, the FTC argued.

In its statement, Illumina said the acquisition “will accelerate patient access to breakthrough, multicancer early detection blood tests, saving additional tens of thousands of patient lives more than if the deal doesn’t happen; save billions of dollars in U.S. health-care costs, which we intend to pass directly to patients, and is procompetitive and will accelerate the early cancer detection market as a whole.”

And Illumina said it would offer to all clinical-oncology customers “contractual guarantees of equal and fair access to sequencing for six years” after the deal closes. And it commits to drive down prices by more than 40% by 2025.

The FTC plans to file its complaint in U.S. District Court in Washington. It will seek a temporary restraining order and preliminary injunction to stop the deal, pending an administrative trial. The agency said that proceeding was set for Aug. 24.

Most mergers that are challenged, the Journal reported, are so-called horizontal deals, in which direct rivals are trying to combine. 

In the past 40 years, according to the Journal, only one vertical merger has been challenged: AT&T's  (T) - Get Report 2017 attempt to acquire Time Warner, which the Justice Department challenged and lost.