FTC reverses course, orders Illumina to unravel Grail deal

The Federal Trade Commission is reversing a decision from last fall where Illumina had won a small legal battle to keep its hold on the cancer blood test developer Grail.

Now, the DNA sequencing giant has six months to completely divest its holdings in the company. The $8 billion acquisition deal closed in August 2021 before receiving a final sign-off from regulators. Illumina has maintained that it has kept Grail’s operations at an arms’ length. 

Illumina plans to appeal the order to unwind its ownership of Grail at a U.S. federal court of appeals within the allowed 60-day window, a spokesperson said in an email to Fierce Medtech. 

That brings the U.S. government position more in line with the sentiment of its European counterparts. Last year, EU antitrust regulators had formally objected to Illumina’s pursuit of Grail, though an official divestment order has not yet been issued.

In its new opinion and order, the FTC reiterated that it believes the deal would “stifle competition and innovation in the U.S. market for life-saving cancer tests.” Illumina commands a massive market share in the field of next-generation DNA sequencing, technology that’s essential to developing more tumor diagnostics and other early detection efforts.

“Entry barriers prevent rival platforms from competing with Illumina’s high throughput, high accuracy and favorable cost profile,” the FTC said in its announcement Monday. 

Since early 2021, the agency has aired worries that Illumina could be tempted to throttle back the research of potential competitors, should it take full ownership of Grail. Illumina had previously spun out Grail. The company's Galleri test is designed to detect as many as 50 different cancers from a single blood draw.

But last September, an administrative law judge at the FTC ruled that the commission’s challenges should be denied. Last year, Illumina CEO Francis deSouza told Fierce Medtech that the acquisition deal is necessary to realize Grail’s full potential and that “every part” of Illumina would be employed to push the widespread adoption of Galleri, including through obtaining regulatory approvals and insurance reimbursement, in addition to scaling up the test’s production and efficiency—a position the company has repeatedly argued to regulators.

But the FTC remains unconvinced. “Real-world evidence of Illumina’s past behavior reinforces the commission’s antitrust concerns,” the agency said this week. “For instance, Illumina gave Grail special pricing and other benefits while it was wholly owned by Illumina.”

In addition, the FTC described Illumina’s previous olive branches—including offers to extend DNA sequencing contracts with other developers of cancer tests at lower prices—as an “ineffective remedy that tackles harm on an ad hoc basis,” and would not be a substitute for open market competition.

“Finally, the opinion rejects parties’ claim that this acquisition is likely to yield results that save lives, noting that their efficiency projections were vague, self-serving and unsupported,” the FTC said. 

The company aims to “arrive at a resolution” by the end of this year or early 2024, the spokesperson noted. This would be about the same time that Illumina expects a decision on its legal battle across the pond. Illumina sued in the European Court of Justice, saying the European Commission does not have the jurisdictional authority to block the Grail deal, as at the time Grail had not done any business in Europe. 

That hasn’t stopped Illumina from preparing for potential fines from its decision to jump the gun in closing the deal. The company has set aside more than $450 million in legal contingency funding, as EU penalties may reach as much as 10% of the companies’ annual turnover.

Meanwhile, on the home front, Illumina has been fending off a proxy challenge led by billionaire investor Carl Icahn. In the past month, Icahn and the company have entered negotiations and traded back-and-forth public statements over Illumina’s handling of the Grail deal.

Starting with an open letter last month to Illumina shareholders, Icahn lamented the company’s $50-billion-drop in market cap since August 2021—as well as the issue that Illumina may have to pay over a billion dollars in taxes on the ordered sale of Grail before it's had the chance to reap any benefits of the acquisition.

Icahn has also called for a change in leadership, telling the Wall Street Journal that CEO deSouza should step down and that shareholders should elect three of his representatives to Illumina’s board at the company’s next annual meeting. Illumina, meanwhile, recently urged investors to vote against the nominees, while filing its preliminary proxy statement (PDF).

With that information—and on the same day as the FTC’s announcement—Icahn issued a new missive to Illumina shareholders, taking aim at deSouza’s $26.7 million in 2022 compensation, which grew from a total of $14.3 million the year before.