Illumina, the leading maker of genetic sequencing machines, is tiny compared to Silicon Valley’s tech giants. But like Google and Facebook, Illumina now finds itself in the crosshairs of antitrust authorities in the United States and Europe.
The company acquired Grail, a promising start-up in a related field that doesn’t really exist yet. Grail has developed a blood test for the early detection of dozens of cancer types. It is the early leader in this technology, but many other companies are developing products for what could one day become a huge global market for medical technology. All rely on Illumina gene sequencers.
Illumina announced its acquisition plan in September 2020. Six months later, the Federal Trade Commission filed a lawsuit to block the deal, claiming Illumina would have the gatekeeper power and financial incentive to strangle rivals of Grail. A few months later, the European Commission also began investigating the deal.
Last August, Illumina went ahead and completed its purchase of Grail for $8 billion, defying regulators. Neither side is backing down, in a battle fought mostly with legal briefs so far.
The Illumina case offers a glimpse of new antitrust thinking that the government should act quickly and forcefully to stop big corporations from buying up nascent innovators. But it also shows the challenge that modern trustbusters will face in persuading the courts to adopt their preventative strike policy.
Illumina took the unusually aggressive step of closing the Grail deal before investigations were completed and the courts ruled. If Illumina loses, the remedy will be to unwind the acquisition. It’s the same solution that the FTC is seeking in its lawsuit against Facebook, now a subsidiary of Meta. The government wants the company to divest Instagram and WhatsApp, saying it bought them in 2012 and 2014 to weed out fledgling competitors.
Illumina’s antitrust fight is closely monitored. Cases that set precedents and shape judicial thinking often do not involve the corporate giants of their day. The landmark Supreme Court decision in Lorain Journal v. United States in 1951, for example, centered on the anti-competitive behavior of a small newspaper in Ohio.
“Small cases can make great laws, and this could be one of those cases,” said Howard University law professor Andrew I. Gavil.
Not so long ago, Illumina’s plan to acquire Grail would likely have faced antitrust scrutiny. Grail uses Illumina’s gene sequencing technology, but that’s a different market. In traditional antitrust terms, the Illumina-Grail deal is a vertical merger as opposed to a horizontal merger, which involves combining two companies into the same enterprise.
Vertical combinations have been seen as generally beneficial, often driving prices down as the buyer brings more investment and stronger competition to the market they are entering.
But in recent years, antitrust has been redesigned. A progressive school of jurists and antitrust experts say enforcement has been too lax, too slow, too backward – to rein in the growing market power of not just internet giants, but across the world. economy.
Two prominent members of the progressive camp are now in charge of enforcing antitrust laws in the United States: Lina Khan, chairwoman of the Federal Trade Commission, and Jonathan Kanter, head of the antitrust division of the Department of Justice.
The new merger rules are at the top of their agenda. Last month, they jointly announced a review of the agencies’ merger guidelines and specifically cited horizontal and vertical definitions as ripe for reconsideration. “Often, transactions don’t fit neatly into either of those categories,” Kanter said.
The Illumina-Grail merger is a test case for the new approach. The FTC sued Illumina three months before Ms. Khan took over.
“But this is clearly the kind of case that she and her cohort of politicians are saying the government should be more aggressive about,” said William Kovacic, former FTC chairman and professor at George Washington University.
Illumina, which is based in San Diego, and the government disagree on most points. But they agree that the market for blood tests that screen for multiple cancers is expected to eventually reach $50 billion by 2035, according to industry forecasts.
Grail presented his blood test in June and says it can detect more than 50 cancers. A doctor must prescribe it, and the $950 test is not yet covered by insurance.
Several other companies are developing early detection blood tests, although Grail detects more types of cancer. Budding competitors include Exact Sciences, Guardant Health, Natera, Freenome, Singlera Genomics, and Harbinger Health. They also depend on Illumina, which today has about 80% of the genetic sequencing market. In its most recent quarter, Illumina’s revenue rose 26% to $1.2 billion, the company said Thursday.
In Illumina, the FTC sees a monopolist ready to thwart competition in a nascent market. In its lawsuit against the merger, the agency asserts that “Illumina will control the fate of every potential Grail rival for the foreseeable future.”
The European Commission is investigating the deal under a recently revised rule designed to block “killer acquisitions”, when the target company is a nascent innovator with tiny sales but “high competitive potential”.
Illumina disputes the claims and fights regulators on both sides of the Atlantic. In the United States, the case is now before an FTC administrative judge. The FTC almost always wins on its own. If Illumina loses to the commission, it plans to challenge the decision in a federal appeals court. In Europe, Illumina disputes, among other things, the jurisdiction of the commission, since Grail has no sales in Europe.
New developments in cancer research
Progress on the ground. In recent years, advances in research have changed the way cancer is treated. Here are some recent updates:
Illumina is betting on the courts and their history of rulings in favor of the accused. In its response to the FTC’s complaint, Illumina observed that the commission and the Justice Department “have failed to prohibit a vertical merger for over 40 years.” He added: “There is a reason for this record.”
Illumina has an energetic salesman for the deal in its 51-year-old chief executive, Francis deSouza. He spoke with regulators, investors and members of Congress. Some conversations took place over video calls, but many took place in person, including trips to Brussels, Washington and New York, with stacked meetings and rapid Covid tests in between.
“The stakes are high here,” Mr. deSouza said. “We believe this technology can be life changing.”
Illumina, he said, has the financial resources and expertise to accelerate the development and adoption of Grail’s blood test. Illumina sells in 140 countries and has expert teams in medical regulation and reimbursement.
According to Illumina, the accelerated use of Grail could save thousands of lives through the early detection of cancers like the pancreas, head and neck and ovaries, which are often diagnosed when the cancer is advanced and death rates are higher.
Grail started inside Illumina. In 2013, Dr. Meredith Halks-Miller, a pathologist, was examining prenatal blood tests for abnormalities. She detected DNA fragments that were signals of cancer in the blood of some mothers. Eventually, further tests confirmed the finding.
In 2016, Illumina created Grail as a cancer test development startup. It has raised $1.9 billion from investors including Jeff Bezos and Bill Gates. Grail was preparing to go public in 2020. Then Illumina stepped in, offering more than Grail was likely to raise in a public offering.
Illumina is committed to ensuring that all of Grail’s competitors will get the same access and price for its sequencing as other customers. Sequencing prices — $600 per genome today, down from $150,000 in 2007 — will continue to fall, the company promises.
Gene sequencing, said deSouza, is the company’s core business and will remain so. He points to prenatal blood testing, where Illumina has a business but sells eight times more sequencers to other companies in that market than it does with its own testing.
The FTC is not convinced. Going forward, the market for blood tests for multiple cancers will become so large that Illumina, the commission said, will have “the incentive to kill or disable” Grail’s emerging rivals.
For Grail, early clinical studies have been encouraging.
Dr. Tomasz Beer, associate director of the Knight Cancer Institute at Oregon Health and Science University, conducted a study of more than 6,600 adults age 50 and older who had no current diagnosis of cancer at the start of the research. The Grail test accurately detected 29 cancers, with no high rates of false positives. Once it detected cancer, the Grail test found the affected organ in 96% of cases.
“Where this area will shake is hard to know,” Dr. Beer said. “But this approach has a lot of underlying scientific promise.”