FTC Seeks to Block Illumina's $7.1 Billion Merger With Life Sciences Firm Grail -- 4th Update

By Brent Kendall and Jonathan D. Rockoff

WASHINGTON -- The Federal Trade Commission filed suit Tuesday to block Illumina Inc.'s planned $7.1 billion acquisition of a company developing an early stage cancer-detection test, in the latest signal that the U.S. is entering a period of more aggressive antitrust enforcement.

The case has added significance because Illumina's proposed acquisition of Grail Inc. is a vertical merger of companies that don't compete head-to-head. Most merger lawsuits involve challenges to so-called horizontal deals that involve the combination of direct rivals.

There has only been one litigated challenge to a vertical merger in more than 40 years: the Justice Department's 2017 case against AT&T Inc.'s acquisition of Time Warner Inc., which the government lost.

The FTC -- consisting currently of two Democrats and two Republicans -- voted 4-0 to go forward with the suit against Illumina's planned acquisition, which comes amid expectations that the Biden administration will step up government efforts to police the marketplace for potential harms to competition.

FTC Acting Chairwoman Rebecca Kelly Slaughter, a Democrat, has advocated a more aggressive stance against vertical deals, and Tuesday's case could set the tone for future efforts. The suit also comes two weeks after the FTC signaled it is preparing to take a harder line on drug-company mergers.

Grail, which was originally founded by Illumina, is among a number of companies that are trying to develop blood-based tests for detecting cancers early. The tests, known as liquid biopsies, look in blood samples for genetic signs of cancer.

Illumina develops and sells next-generation sequencing machines that run these tests, and the chemicals used in them. It launched Grail in 2016 and owns a 15% stake in the company. Illumina announced its intent to buy the remaining stake last year, as Grail was preparing to go public.

The FTC's lawsuit alleges the deal would diminish innovation in the U.S. market for multicancer early detection tests. Test developers have no choice but to use Illumina's instruments, and because of its role as a critical supplier, Illumina could raise the prices it charges to Grail's competitors and impede their research and development efforts, the commission alleged.

Ms. Slaughter of the FTC said an early-detection test "is a game changer for cancer patients and their loved ones. If this acquisition is consummated, it would likely reduce innovation in this critical area of healthcare, diminish the quality of [the] tests, and make them more expensive."

Illumina said its deal with Grail wouldn't reduce the number of competitors in the marketplace.

The company's chief executive, Francis deSouza, said the deal would significantly expand access to early detection tests, reduce healthcare costs and save tens of thousands of lives because Illumina will be able to scale up testing operations more quickly.

"We intend to vigorously defend this acquisition," he said.

Mr. deSouza said selling sequencers and supplies was Illumina's core business and it had no incentive to restrict access to those products. The company also said that if the deal closes, it would offer clinical oncology customers equal and fair access to sequencing.

Hans Bishop, Grail's chief executive, also objected to the FTC's action. "We continue to believe that together we could transform cancer care by catching more cancers earlier," he said.

This is the second time in recent years that the FTC and Illumina have clashed. The commission in 2019 challenged the company's planned acquisition of Pacific Biosciences of California, a $1.2 billion deal in the life-sciences industry. Illumina dropped that deal instead of fighting the FTC in court.

The FTC filed a complaint in its own in-house administrative court, and it will file a companion lawsuit in a Washington, D.C., federal court that seeks a preliminary injunction blocking the deal.

Vertical mergers have been regarded as deals that often offer procompetitive benefits because they can make a firm more efficient, for example by integrating multiple links in a company supply chain. But the FTC and Justice Department, which share antitrust authority, both have said such deals can cause harm in some circumstances, especially in concentrated markets.

The agencies have raised past objections to vertical deals, but their concerns usually have been resolved through legal settlements that allowed the mergers with conditions attached.

That happened, for example, when the department in 2011 allowed Comcast Corp. to take control of NBCUniversal, and approved Ticketmaster Entertainment's merger with concert-promoter Live Nation in 2010. Some critics argued the government's prior approach was too lenient.

The department's AT&T-Time Warner case underscored that a vertical merger challenge can be difficult to win. A federal judge in 2018 ruled the government failed to prove its claim that AT&T could hamper its pay-TV distribution rivals if it owned Time Warner's catalog of popular video content.

Tuesday's case comes at a time of rapid evolution in the world of cancer detection.

Liquid biopsies promise to detect cancers much earlier than current cancer tests, which require surgery or a tissue biopsy. Earlier detection could make treatment more effective.

The tests could also help doctors find the best drugs to prescribe and look out for a recurrence.

The projected market for liquid biopsies is at least $30 billion in the U.S., Cowen & Co. estimates. Given the commercial opportunity, several companies including Grail have been working to develop the blood-based cancer tests.

Researchers have struggled, however, with accuracy issues. More-advanced sequencing equipment, like the machines sold by Illumina, promise greater accuracy.

Last August the U.S. Food and Drug Administration approved the first liquid biopsy, from Guardant Health Inc., using next-generation sequencing technology.

Later in the year, Roche Holding AG's Foundation Medicine business won U.S. regulatory approval to sell a liquid biopsy for identifying genetic changes to tumors and selecting drugs that can treat certain cancers.

Write to Brent Kendall at [e-mail] and Jonathan D. Rockoff at [e-mail]

Corrections & Amplifications

This article was corrected at 9:14 p.m. ET to reflect that Illumina said its deal with Grail wouldn't reduce the number of competitors in the marketplace. The original version of this article incorrectly said the FTC's lawsuit wouldn't reduce the number of competitors.

(END) Dow Jones Newswires

03-30-21 1842ET