Illumina, the leading maker of gene-determining machines, is small compared to Silicon Valley’s tech giants. But like Google and Facebook, Illumina is now in the crosshairs of antitrust enforcers in the United States and Europe.
The company bought Grail, a promising start-up in a related company that doesn’t really exist yet. Grail developed a blood test for the early detection of dozens of cancers. It is the early leader in this technology, but many other companies are developing products for what could one day be a huge global medical technology market. They all rely on Illumina’s gene sequencers.
Illumina announced its acquisition plan in September 2020. Six months later, the Federal Trade Commission filed a complaint to block the deal, saying Illumina would have the gatekeeper power and financial incentive to strangle Grail’s rivals. A few months later, the European Commission also began investigating the deal.
Last August, Illumina went ahead and completed its $8 billion purchase of Grail, defying regulators. Neither side is holding back, in a battle that has so far been fought mainly on the basis of legal instructions.
The Illumina case offers insight into new thinking in antitrust that says government must act quickly and forcefully to prevent larger companies from buying young innovators. But it also shows the challenge modern trustbusters will face in convincing courts to embrace their preventive strike policies.
Illumina took an unusually aggressive step when it closed the Grail deal before the investigations were completed and the courts ruled. If Illumina loses, the cure will be to wind up the takeover. It’s the same solution the FTC is seeking in its case against Facebook, now a subsidiary of Meta. The government wants the company to get rid of Instagram and WhatsApp, claiming it bought them in 2012 and 2014 to eliminate budding competitors.
Illumina’s antitrust battle is closely monitored. Cases that set precedents and shape legal thinking often have no bearing on the big companies of their day. The landmark Supreme Court ruling in Lorain Journal v. United States in 1951, for example, dealt with the anticompetitive behavior of a small Ohio newspaper.
“Smaller cases can make big law, and this could be one of those cases,” said Andrew I. Gavil, a law professor at Howard University.
Not long ago, Illumina’s plan to acquire Grail would most likely have gone through an antitrust review. Grail uses Illumina’s gene sequencing technology, but it’s in a different market. In traditional antitrust terms, the Illumina-Grail deal is a vertical merger as opposed to a horizontal merger, which combines two companies in the same company.
Vertical combinations are generally considered to be beneficial, with prices often reduced as the buyer puts more investment and stronger competition into the market it enters.
But in recent years there has been a rethink of antitrust. A progressive school of lawyers and antitrust experts argues that enforcement has been too lax, too slow and backward – to curb the growing market power of not just the Internet giants but the entire economy.
Two senior members of the progressive camp are now in charge of antitrust enforcement in America: Lina Khan, chair of the Federal Trade Commission, and Jonathan Kanter, head of the Justice Department’s antitrust division.
New merger rules are at the top of their agenda. Last month, they jointly announced a review of the agencies’ merger guidelines, specifically citing the horizontal and vertical definitions as ripe for reconsideration. “Many times, transactions don’t fit neatly into one of those categories,” said Mr. Kanter.
The merger between Illumina and Graal 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 policy cohort say the government should be more aggressive in bringing,” said William Kovacic, a former chairman of the FTC and a professor at George Washington University.
San Diego-based Illumina and the government disagree on most points. But they agree that the market for blood tests that screen for multiple cancers should eventually be huge — reaching $50 billion by 2035, according to industry forecasts.
Grail introduced its 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 blood tests for early detection, although Grail screens for more cancer types. Its aspiring competitors include Exact Sciences, Guardant Health, Natera, Freenome, Singlera Genomics, and Harbinger Health. They also depend on Illumina, which today controls about 80 percent of the gene sequencing market.
In Illumina, the FTC sees a monopolist poised to thwart competition in an emerging market. In its complaint against the merger, the agency claims that “Illumina will determine the fate of any potential rival to the Grail for the foreseeable future.”
The European Commission is investigating the deal under a recently revised rule designed to block “killer acquisitions” while the target company is a fledgling innovator with tiny sales but “high competitive potential.”
Illumina is disputing the claims and battling regulators on both sides of the Atlantic. In the United States, the case is now before an administrative judge of the FTC. The FTC almost always wins on its home turf. If Illumina loses before the commission, it plans to challenge the ruling in a federal appeals court. In Europe, Illumina disputes the commission’s jurisdiction, among other things, as Grail has no sales in Europe.
New developments in cancer research
Map 1 of 6
Progress in the field. In recent years, advances in research have changed the way cancer is treated. Here are some recent updates:
Chemotherapy. A quiet revolution is underway in cancer treatment: a growing number of patients, especially those with breast and lung cancer, are sparing the dreaded treatment in favor of other options.
Leukemia. After receiving a new treatment called CAR T-cell therapy more than a decade ago, two patients with chronic lymphocytic leukemia saw the blood cancer disappear. Their cases offer hope for people with the disease and create some new mysteries.
esophageal cancer. Nivolumab, a drug that unleashes the immune system, was found to extend survival times in patients with the disease who participated in a large clinical trial. Esophageal cancer is the seventh most common cancer in the world.
Illumina bets on the courts and their history of pro-suspect rulings. In its response to the FTC complaint, Illumina noted that the commission and the Justice Department “have not successfully imposed a vertical merger in over 40 years.” It added, “There’s a reason for that track record.”
Illumina has an energetic salesperson for the deal in 51-year-old chief executive, Francis deSouza. He has spoken with regulators, investors and members of Congress. Some conversations were via video calls, but many were in person, including trips to Brussels, Washington and New York, with stacks of meetings and rapid Covid testing in between.
“There’s a lot at stake here,” said Mr. deSouza. “We think this technology can change lives.”
Illumina, he said, has the financial resources and expertise to accelerate the development and application of the Grail blood test. Illumina sells in 140 countries and has expert medical regulatory and reimbursement teams.
Accelerating the use of Grail, Illumina argues, could save thousands of lives from the early detection of cancers such as pancreatic, head and neck and ovarian, which are often diagnosed when the cancer is advanced and death rates are higher.
Grail started within Illumina. In 2013, Dr. Meredith Halks-Miller, a pathologist, examined prenatal blood tests for abnormalities. She discovered DNA fragments that were cancer signals in the blood of some mothers. Ultimately, further tests confirmed the discovery.
In 2016, Illumina continued Grail as a cancer test development startup. It raised $1.9 billion from investors including Jeff Bezos and Bill Gates. Graal was preparing to go public in 2020. Then Illumina came in and offered more than Grail would likely yield in a public offering.
Illumina has promised that all Grail rivals will receive the same access and prices for the sequencing as other customers. Sequencing prices — currently $600 per genome, less than $150,000 in 2007 — will continue to fall, the company promises.
Gene sequencing, Mr. deSouza said, is and will remain the core business of the company. He points to prenatal blood testing, where Illumina has a business but sells eight times as many sequencers to other companies in that market as it does in its own testing.
The FTC is not convinced. Going forward, the multi-cancer blood test market will grow so large that Illumina, the commission said, will have “the incentive to kill or take out Grail’s emerging rivals.”
For Grail, early clinical trials have been encouraging.
dr. Tomasz Beer, deputy director of the Knight Cancer Institute at Oregon Health and Science University, led a study of more than 6,600 adults age 50 and older who had no current cancer diagnosis at the start of the study. The Grail test accurately detected 29 cancers, with no high false positive rates. Once it detected cancer, the Grail test found the affected organ 96 percent of the time.
“Where this field will shake out is hard to know,” said Dr. Bear. “But this approach has a lot of underlying scientific promise.”