In the coming months, courts in the U.S. and Europe will rule whether Illumina (ticker: ILMN) must abandon its $8 billion acquisition of the cancer-testing company Grail, under orders of antitrust authorities. Illumina argues that it\u2019s the victim of administrative-state overreach. Millions could die of cancer, says the company, if bureaucrats bust up the deal. <\/p>\n
\n
Regulators are too dismissive of the merger\u2019s potential benefits, says Bilal Sayyed, a former policy official at the Federal Trade Commission who is now at the think tank TechFreedom. Slowing the advance of blood tests for cancer could do real harm, he warns: \u201cIt\u2019s not like paying a few dollars more at the gas pump, or a few dollars more for your grocery basket.\u201d<\/p>\n
To critics of executive-branch power and of the FTC\u2019s activist chair, Lina Khan, Illumina\u2019s case might be their ticket to the U.S. Supreme Court and a ruling that blunts agency power. The case could reach the high court in the next term, which starts in October.<\/p>\n
One thing makes Illumina\u2019s test case less compelling: Many shareholders want the company to lose.<\/p>\n
Investors hate the Grail acquisition. Discontent with the deal fueled Thursday\u2019s proxy contest vote that gave chairman John Thompson\u2019s board seat to an employee of activist Carl Icahn. Since the San Diego-based company closed its Grail deal in 2021, Illumina shares have slumped by two-thirds, to a recent $189, knocking $50 billion from the company\u2019s market value. Some of that drop reflects a slowdown in Illumina\u2019s own growth, but it\u2019s also clear that Grail could lose billions over the next decade before its tests turn a profit. The stock perks up when the merger looks doubtful, and slumps when the merger appears on track.<\/p>\n
When Illumina closed the Grail deal in August 2021, Illumina stock had just hit a record high of $526. llumina\u2019s technology for reading DNA sequences earned 25% margins and drove medical breakthroughs.<\/p>\n
Illumina had spun out Grail several years earlier to let it develop a blood test that might detect early signs of cancer. When Grail announced in 2020 that its test could find 50 kinds of cancer in a blood sample\u2014including cancers of the pancreas or ovary, which lack a screening test\u2014Illumina agreed to reacquire it. Multi-cancer early detection tests could lift Illumina\u2019s annual revenue from billions to tens of billions, said CEO Francis deSouza.<\/p>\n
But Illumina\u2019s clinical lab customers also aimed to develop multi-cancer early detection tests. Like Grail\u2019s, the tests under development at
\n Exact Sciences
\n (EXAS) and
\n Guardant Health
\n (GH) rely on Illumina sequencers. They feared that owning Grail might tempt Illumina to hinder their access to its sequencing technology.<\/p>\n
Antitrust enforcers in the U.S. and Europe challenged the merger. The FTC and the European Commission each argued that Illumina had the incentive and ability to foreclose Grail\u2019s rivals from catching up to its lead in multi-cancer early detection.<\/p>\n
In a surprise twist last September, the FTC\u2019s in-house judge dismissed the agency\u2019s challenge, satisfied by Illumina\u2019s promise to offer sequencing technology to Grail\u2019s rivals on the same terms as Grail. Days later, however, Europe barred the deal. Then, in April, the FTC\u2019s Democratic and Republican commissioners all voted to overrule their judge and bar the deal.<\/p>\n
Illumina must now win court appeals in both Europe and the U.S.<\/p>\n
In Europe, Illumina argues that antitrust enforcers have no jurisdiction over the purchase of Grail, because Grail has yet to do business in the region. Indeed, regulators there asserted authority under a roundabout mechanism that lets the European Commission help member countries with local antitrust reviews.<\/p>\n
Illumina public affairs chief John Frank said there\u2019s broad industry support for closing the loophole used by the commission to claim jurisdiction.<\/p>\n
\u201cIt\u2019s a big issue in antitrust circles here,\u201d says Alec Burnside, a veteran antitrust lawyer with Dechert in Brussels who Illumina hired to discuss the case. As a precedent, he says, the case could set Europe up to police mergers anywhere in the world.<\/p>\n
The European Union\u2019s lower court supported regulators, so Burnside said time will tell whether the \u201cstrong arguments\u201d for Illumina will win its appeal to the EU\u2019s higher court. The decision could come by year\u2019s end.<\/p>\n
In the U.S., Illumina plans to ride the wave of conservative thinking that\u2019s swept some federal courts. It took its appeal to the New Orleans-based Fifth Circuit Court of Appeals, whose past rulings have trimmed the powers of federal agencies.<\/p>\n
\u201cMerger law relies on findings of fact,\u201d says Georgetown University economist and law professor Steven Salop. Illumina and the FTC differ on whether firms like Exact Sciences and Guardant are close competitors of Grail; whether Illumina has an incentive to put them at a technology disadvantage; and whether Illumina can accelerate multi-cancer testing.<\/p>\n
The Fifth Circuit has put the appeal on a fast track, meaning the court might rule by September\u2014in time for the Supreme Court\u2019s next term. Critics of the administrative state hope Illumina\u2019s case will inspire a decision by Supreme Court conservatives that curbs the power of antitrust enforcers at the FTC and the Department of Justice.<\/p>\n
The FTC declined to comment.<\/p>\n
Despite all the skirmishing, Grail\u2019s business has been a bust. Sales have been slow to take off, and the venture is losing money at the rate of $800 million a year. The test costs $949, and insurers won\u2019t widely cover it until Medicare does. Medicare won\u2019t cover it until Grail conducts big clinical trials and wins Food and Drug Administration approval.<\/p>\n
Whatever hopes deregulation advocates may have for Illumina\u2019s case, on Wall Street many analysts predict a Grail divestment. Even deSouza recognizes the merger\u2019s unpopularity: He and his colleagues told the Street they may divest Grail regardless of the legal outcome. <\/p>\n
As usual, investors are ahead of the lawyers.<\/p>\n
Write to <\/strong>Bill Alpert at william.alpert@barrons.com<\/p>\n<\/p><\/div>\nRead the full article here<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"The biotech company Illumina has become a battleground between big business and big government. In the coming months, courts in the U.S. and Europe will rule whether Illumina (ticker: ILMN) must abandon its $8 billion acquisition of the cancer-testing company Grail, under orders of antitrust authorities. Illumina argues that it\u2019s the victim of administrative-state overreach. […]<\/p>\n","protected":false},"author":1,"featured_media":14207,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"video","meta":{"footnotes":""},"categories":[239],"tags":[83],"class_list":["post-14206","post","type-post","status-publish","format-video","has-post-thumbnail","hentry","category-investing","tag-featured","post_format-post-format-video"],"yoast_head":"\n
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