EU Regulators Rumored to Be on the Cusp of Ordering Illumina to Sell Grail

European Union regulators are reportedly preparing to order US biotech firm Illumina to divest cancer test developer Grail following its $8 billion acquisition of the company without prior approval from Brussels. This move is intended to further penalize Illumina after the EU fined the gene-sequencing giant €432 million in July. Apparently, the ruling could come as early as next week.

The dispute between Illumina and Brussels dates back to 2021 when the San Diego-based company finalized its purchase of Grail while EU regulators were still evaluating the deal’s potential impact on competition. In April of that year, the European Commission accepted a referral for review of the acquisition under Article 22(1) of the EU Merger Regulation despite GRAIL having no revenues in Europe. Illumina filed an action in the EU General Court to contest the European Commission’s assertion of jurisdiction. The EU General Court upheld the European Commission’s jurisdiction in July 2022, leading Illumina to file an appeal with the Court of Justice of the European Union in September 2022.

Furthermore, the European Commission completed its Phase II review of the acquisition in September 2022 and issued a Prohibition Decision, finding the acquisition incompatible with the internal European market. Illumina challenged this decision in November 2022. The European Commission subsequently issued a Statement of Objections in December 2022, outlining the order to divest GRAIL. Illumina responded to this statement in January 2023. On July 12, 2023, the European Commission imposed a fine of approximately €432 million on Illumina, citing a breach of the EU Merger Regulation due to Illumina’s alleged exertion of decisive influence over GRAIL during the European Commission’s review. Illumina intends to appeal this decision.

In addition to the EU’s impending order, Illumina is currently challenging a similar directive from the US Federal Trade Commission (FTC). The Federal Trade Commission initiated legal action against Illumina on March 30, 2021, alleging that the acquisition violated Section 7 of the Clayton Act. The administrative trial commenced on August 24, 2021, and on September 1, 2022, the administrative law judge ruled in favor of Illumina, stating that the acquisition did not breach Section 7. However, on March 31, 2023, the FTC issued an opinion and order requiring Illumina to divest GRAIL, overturning the administrative law judge’s decision but Illumina was granted a petition to appeal by the FTC. Both the EU and FTC cases are awaiting final decisions.

If Illumina is forced to sell GRAIL, the major question is what valuation would the asset command in today’s market. Most personalized medicine companies have seen significant declines in their valuations since the market peak in 2021, and significantly higher focus is currently being placed on profitability and positive cash flow generation by industry participants. Even for a large company, an acquisition of GRAIL would be highly dilutive. Illumina reported operating income losses of $408 million on GRAIL in the first half of 2023 with only $42 million in total revenue.

GRAIL recently released data from its PATHFINDER clinical study. In the 6,621 participants, a cancer signal was detected in 92 individuals (1.4%). Out of the 92 with a cancer signal, 35 were diagnosed with cancer (true positives), while 57 did not have a cancer diagnosis (false positives). Importantly though, 1.3% (86 out of 6529) of true cancers were wrongly classified as false negatives. When comparing the true positives to the false negatives, the Galleri test only detected 35 of 121 actual cancers of a sensitivity of 28.9%. Therefore, the test missed significantly more actual cancers (greater than 2 to 1) than it detected.