- The Federal Trade Commission has moved to block Illumina's $7 billion takeover of Grail because it claims the deal will "harm competition in the U.S. market" for cancer diagnostics meant to spot tumors at their earliest stages.
- Illumina said it disagrees with and will oppose the FTC action, arguing the company and Grail "do not compete in any way" and that the merger will get tests "to patients more quickly and more affordably."
- The action comes just two weeks after FTC signaled plans to more closely scrutinize life sciences deals, a move prompted by rising drug prices and other anti-competitive issues. Analysts at Evercore ISI called the FTC's challenge a surprise and, based on prior situations such as Illumina's blocked takeover of Pacific Biosciences, see no "easy fixes" for the two companies.
The FTC typically opposes a merger when a combination would grant a company too big a share of a market. Faced with such an objection, the companies can divest assets. Celgene, for instance, was forced to offload its autoimmune drug Otezla because of competing products owned by its acquirer Bristol Myers Squibb.
The commission's objection to Illumina's acquisition of Grail is different. Illumina, a provider of genome sequencing technology, and Grail, which developers cancer diagnostics, work in different markets. And, as analysts at Evercore noted, "the question of monopoly wasn't really relevant" as the tests Grail has been developing are new to the market. The FTC, however, sees Illumina's DNA sequencing dominance as reason enough to oppose the deal.
The FTC said, for example, that because Illumina the only viable supplier of genetic sequencing, it can hurt Grail's rivals by raising prices, impeding their research efforts.
"For the specific application at issue in this matter ... developers have no choice but to use Illumina [sequencing] instruments and consumables," the commission said.
In theory, another sequencing provider could capture business from cancer test developers that become dissatisfied with Illumina's prices and policies. However, the FTC argued it would take years for them to transition away from Illumina because they would need to reconfigure their tests and potentially run new clinical trials.
An administrative trial is scheduled to start on Aug. 24. The FTC is seeking a preliminary injunction to stop the deal pending the conclusion of the trial.
The FTC argument touches on concerns raised by analysts when Illumina first disclosed the takeover. The company pushed ahead nonetheless and aims do the same in the face of the FTC's objection.
Illumina said it intends to pursue all legal options to complete the acquisition. The company has already offered its oncology customers "contractual guarantees" to fair and equal access to its products and committed to slash prices by more than 40% by 2025.
Analysts remain skeptical, however. The company failed to overcome a similar challenge to its past buyout of Pacific Biosciences. Evercore analysts cited that track record, and added they "don't see any easy fixes on Illumina's part to mitigate [the] FTC's concern."
The action is the first FTC challenge of a life sciences deal since the commission announced it would join European, British, and Canadian regulators to update their approach in reviewing such transactions. The FTC had reviewed deals like Bristol's takeover of Celgene and AbbVie's buyout of Allergan and found its existing approach didn't "encompass the entirety of these transactions," committee chair Rebecca Kelly Slaughter said.