In September 2020, Illumina (Nasdaq: ILMN), a US-based biotech firm with a focus on gene sequencing and genotyping, announced that it would acquire GRAIL, a healthcare company that aims to research and detect early signs of cancer via blood tests on patients with no symptoms. Amidst the heat of biotech M&A in 2020, the $8 billion acquisition (which will be funded with $3.5 billion in cash and $4.5 billion in Illumina common stock) seemed exactly like every other, until it became a victim to an investigation headed by the European Commission regarding its dominance within the gene sequencing industry, despite it not being present yet in the European biotech market.
Illumina’s proposal to acquire GRAIL was not unexpected to those knowledgeable in the field, as the target spun off Illumina itself in 2015 to start its own independent research focused only on early-diagnosis through liquid biopsy. Its last series A funding round, backed by both Jeff Bezos and Bill Gates, raised $100 million, and resulted in the “Galleri Test” being taken into the first phase of clinical trials. The firm has already established partnerships with the NHS, and plans on finishing all clinical trials before the end of 2021.
According to the President and CEO of Illumina Francis deSouza, GRAIL’s acquisition will provide many strategic benefits to both parties. GRAIL will gain access to Illumina’s global network, distribution capacity and established commercial presence. Illumina, on the other hand, will access the cancer screening market, thus expanding its product range into oncology testing (a field that is expected to grow to $75 billion by 2035). According to Hans Bishop, this acquisition will “reduce the cancer burden worldwide” by improving the efficacy of cancer diagnosis, thus increasing the patient’s chances of survival.
So, what exactly is the problem with Illumina’s acquisition proposal?
In 2020, the global market size of cancer diagnosis was measured at USD 115.60 billion, with a 8.4% CAGR, depending on the type of diagnosis method. Low-cost testing, as GRAIL’s fluid biopsy poses itself, dominates the cancer diagnosis market, especially in Latin America and Asia. At this growth rate, market experts project the industry to be worth USD 261.34 billion by 2027, with low-cost diagnosis solutions maintaining the dominant share of this market. Illumina is already a global leader in biotechnology and plays a significant role in the development of new gene sequencing innovation. After the GRAIL addition, it sets itself up as a market leader in a newly-formed industry, thus, according to regulators, stifling future innovation through its patented technology. Due to the strict nature of cancer testing approval, the technology approval process often takes years, so market share can easily be protected with the help of patents and constant R&D.
All this led to France, Greece and Belgium flagging the deal as a potential infraction of competition regulation recently established by the European Union against M&A activity that may result in future lower market competition. Theoretically, GRAIL does not even have a presence in the EU (as previously mentioned, the start-up only recently extended research into the UK) so this investigation seems odd from a legal perspective. Apart from already being investigated by the US Federal Trade Commission for the same reasons, Illumina had to cancel a merger with Pacific Biosciences in early 2020 due to antitrust issues. To regulators in the US, UK and the EU, Illumina’s recent growth profile seems to cross into the gray area of monopolistic activity. In response to this argument, Illumina sued the European Commission, and proceeded to use the fact that GRAIL does not even operate in the EU as its main counterargument.
This is not the first time a pharma or tech deal has been struck down by the European Commission’s new EU Merger Regulation, which was amended in early 2021 to impose additional scrutiny into deals where a start-up may present significant competition despite not generating any revenues at the time. It is, however, the first time that a start-up openly challenged this increased scrutiny as a potential harm to society, due to the fact that an estimated 10 million people die of cancer annually, and could greatly benefit from the technology this deal may offer.
Ana Raposo
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Illumina’s proposal to acquire GRAIL was not unexpected to those knowledgeable in the field, as the target spun off Illumina itself in 2015 to start its own independent research focused only on early-diagnosis through liquid biopsy. Its last series A funding round, backed by both Jeff Bezos and Bill Gates, raised $100 million, and resulted in the “Galleri Test” being taken into the first phase of clinical trials. The firm has already established partnerships with the NHS, and plans on finishing all clinical trials before the end of 2021.
According to the President and CEO of Illumina Francis deSouza, GRAIL’s acquisition will provide many strategic benefits to both parties. GRAIL will gain access to Illumina’s global network, distribution capacity and established commercial presence. Illumina, on the other hand, will access the cancer screening market, thus expanding its product range into oncology testing (a field that is expected to grow to $75 billion by 2035). According to Hans Bishop, this acquisition will “reduce the cancer burden worldwide” by improving the efficacy of cancer diagnosis, thus increasing the patient’s chances of survival.
So, what exactly is the problem with Illumina’s acquisition proposal?
In 2020, the global market size of cancer diagnosis was measured at USD 115.60 billion, with a 8.4% CAGR, depending on the type of diagnosis method. Low-cost testing, as GRAIL’s fluid biopsy poses itself, dominates the cancer diagnosis market, especially in Latin America and Asia. At this growth rate, market experts project the industry to be worth USD 261.34 billion by 2027, with low-cost diagnosis solutions maintaining the dominant share of this market. Illumina is already a global leader in biotechnology and plays a significant role in the development of new gene sequencing innovation. After the GRAIL addition, it sets itself up as a market leader in a newly-formed industry, thus, according to regulators, stifling future innovation through its patented technology. Due to the strict nature of cancer testing approval, the technology approval process often takes years, so market share can easily be protected with the help of patents and constant R&D.
All this led to France, Greece and Belgium flagging the deal as a potential infraction of competition regulation recently established by the European Union against M&A activity that may result in future lower market competition. Theoretically, GRAIL does not even have a presence in the EU (as previously mentioned, the start-up only recently extended research into the UK) so this investigation seems odd from a legal perspective. Apart from already being investigated by the US Federal Trade Commission for the same reasons, Illumina had to cancel a merger with Pacific Biosciences in early 2020 due to antitrust issues. To regulators in the US, UK and the EU, Illumina’s recent growth profile seems to cross into the gray area of monopolistic activity. In response to this argument, Illumina sued the European Commission, and proceeded to use the fact that GRAIL does not even operate in the EU as its main counterargument.
This is not the first time a pharma or tech deal has been struck down by the European Commission’s new EU Merger Regulation, which was amended in early 2021 to impose additional scrutiny into deals where a start-up may present significant competition despite not generating any revenues at the time. It is, however, the first time that a start-up openly challenged this increased scrutiny as a potential harm to society, due to the fact that an estimated 10 million people die of cancer annually, and could greatly benefit from the technology this deal may offer.
Ana Raposo
Want to keep up with our most recent articles? Subscribe to our weekly newsletter here.