European Union blocks Illumina’s years-long quest for Grail

The European Commission said Illumina chose poorly when it decided to move forward with its $8 billion deal for the cancer test developer Grail.

After antitrust reviews lasting more than a year, the commission officially moved to block the acquisition. Illumina—which commands a massive international market share among DNA sequencing and research tools—would be too equipped to throttle back the work of Grail’s competitors, the commission noted. These other companies are also aiming to diagnose cancer at the earliest and most treatable stages by analyzing the errant genetic material tumor cells release into the bloodstream.

“If successful, these tests will revolutionize our fight against cancer and help to save millions of lives,” Margrethe Vestager, the commission’s executive vice-president in charge of competition policy, said in a release. “Illumina is currently the only credible supplier of a technology allowing to develop and process these tests.”

The commission explained that developers of early cancer detection tests will not only require high-throughput DNA sequencing systems to potentially screen thousands of patients but that they will also have to rely on those manufacturers in the future for their support networks. And consequently, the commission felt that as of today, only Illumina meets that bar, with “no credible alternatives” in the short- to medium-term.

This would give Illumina a clear incentive to hamper the R&D of Grail’s rivals sooner rather than later, the commission said, especially in a lucrative cancer testing market projected to grow to at least $40 billion worldwide by 2035.

Illumina, for its part, had pledged to honor standardized contracts with other users of its technology and offered commitments to provide diagnostic developers with uninterrupted access to currently available research tools for at least 10 years.

However, the commission said that olive branch—as well as promises to drop patent lawsuits against the China-based next-generation sequencer manufacturer BGI Genomics—did not go far enough. 

Not only would it be difficult to conclude whether any poor technical support, as a hypothetical example, were to carry anticompetitive motives, but those commitments would also not have prevented any preferential treatment for Grail and its Galleri test, according to the commission.

Illumina said it plans to appeal the decision. In a release, the DNA sequencing giant said that, if it is ultimately denied the chance to fully integrate Grail into its commercial capacities, it could potentially take an extra five years for the Galleri test to make its full rollout in the European Union with more lives lost to cancer as a result.

Grail’s prescription test, which made its debut in June 2021, is designed to track down as many as 50 different cancers from a single blood draw and trace back tumors to different organs by analyzing unique genetic signatures.

Though Grail tallied only $12 million in revenue for this year’s second quarter—compared to operating losses of $187 million—the company described Galleri's first 12 months on the market as “the fastest ever first-year revenue ramp of a cancer screening test.” With Galleri available in the U.S. and the U.K., Illumina is projecting that Grail's total 2022 revenue will land between $50 million and $70 million.

In an interview earlier this year with Fierce Medtech, Illumina CEO Francis deSouza said it would require every part of the company to realize the full benefits of Grail’s work, as well as to shepherd the Galleri test through the layers of continental, national and regional reviews necessary to obtain European regulatory approvals and reimbursements.

“That is not something that we could just do as a favor or as a consulting assignment to Grail,” deSouza said in February. Illumina has held onto Grail—which began life as an Illumina spinout in 2015—as a separately managed subsidiary since it completed its acquisition in August 2021, without first receiving official approval from antitrust regulators.  

The European Commission is still investigating whether doing so breached its merger control rules. It alleged in late July that Illumina jumped the gun by closing the deal early, nearly a year after the terms of the acquisition were first announced. Breaking the EU’s so-called “standstill obligation” can carry fines up to 10% of Illumina and Grail’s annual revenue.

And last month Illumina said it was preparing for that possibility, setting aside $453 million in what it described as “legal contingencies” during the second quarter of this year, sending its earnings report into the red.

Meanwhile, in its release today Illumina said it would begin reviewing strategic alternatives for divesting Grail, should a final EU order not be postponed during the appeal process in the coming months.

The company said it is also separately appealing a July decision by Europe’s second-highest court, which had concluded that the commission’s competition watchdogs did have jurisdiction over the proposed acquisition, even if Grail has yet to do business on the continent.

However, across the pond, Illumina saw a legal victory last week over the U.S. Federal Trade Commission and its similar antitrust complaints.

An administrative law judge ruled in Illumina’s favor Sept. 1, rejecting the FTC’s position that the Grail deal would hinder competition. The day after, the agency filed a notice that it would appeal that decision as well.