Biotech giant Illumina has announced it will unwind its $7.1 billion acquisition of cancer screening startup Grail Inc following a U.S. federal appeals court decision earlier this week.
Background Of The Deal
Illumina, based in San Diego, is a leading manufacturer of gene sequencing equipment. In 2017, Illumina spun off its cancer screening subsidiary Grail as a separate startup, while retaining a large ownership stake. Grail has since developed Galleri, a pioneering multi-cancer early detection blood test which looks at DNA fragments for signs of cancer.
In 2020, Illumina announced it would reacquire Grail for $7.1 billion amid Grail’s plans to launch Galleri commercially in 2021. However, U.S. and European antitrust regulators intervened, filing lawsuits claiming the deal would stifle competition.
While Illumina already owned a majority stake in Grail before the deal, antitrust regulators argued the full acquisition would give Illumina – as the dominant gene sequencing firm – too much control over the emerging market for multi-cancer early detection testing as Grail launched its Galleri product. Grail relies heavily on gene sequencing equipment and expertise from Illumina to function.
| Date | Event |
|---|---|
| 2017 | Illumina spins off cancer screening startup Grail as separate firm |
| 2020 | Illumina announces $7.1B deal to reacquire Grail |
| 2021 | U.S. FTC sues to block deal over antitrust concerns |
| 2022 | EU opens in-depth probe into acquisition |
| Dec 2022 | EU orders Illumina to keep Grail separate amid probe |
| Dec 15, 2023 | U.S. appeals court sides with FTC over antitrust issues |
| Dec 17, 2023 | Illumina announces it will unwind Grail acquisition |
U.S. Appeals Court Rules For FTC
On December 15th, the U.S. 5th Circuit Court of Appeals overturned a lower court ruling allowing the deal to go ahead. The appeals court sided with the U.S. Federal Trade Commission (FTC), which argued the deal would stifle innovation in the nascent market for blood-based multi-cancer screening tests.
With the FTC claiming another victory after Illumina previously said it intended to close the deal regardless of regulatory concerns, analysts widely predicted Illumina would move to unwind the transaction to avoid a lengthy court battle.
Illumina CEO Francis deSouza said the company was “disappointed” in the ruling but would comply with the court’s order.
Divestiture Plans
Two days after the ruling, on December 17th, Illumina formally announced plans to divest Grail in 2023. Illumina said doing so would “best enable broader patient access to Grail’s Galleri multi-cancer early detection test.”
Illumina filed a registration statement with the SEC outlining options to divest Grail, either through a spin-off, sale, merger or other transaction. This indicates unraveling the $7 billion deal will be complex given Illumina’s existing ownership ties and IP licensing agreements with Grail around gene sequencing tech.
Analysts say Grail could pursue one of several options:
- Revival of its planned 2021 IPO, which was halted after Illumina re-acquisition deal
- Sale to a healthcare firm like Roche or J&J
- Merger with a special purpose acquisition company (SPAC)
JPMorgan analyst Tycho Peterson believes Grail would prefer to once again pursue an IPO in 2023. However Goldman Sachs analyst Matthew Sykes suggests a faster option like a SPAC merger could enable Grail to move forward more quickly amid the urgent market need for new cancer detection options.
Illumina said it aims to finalize Grail’s divestiture by late 2023 or early 2024. The FTC will closely oversee the unwinding process.
Meanwhile, Illumina’s separate battle to close the Grail deal despite antitrust objections in Europe remains ongoing.
Impact On Companies
Unwinding the blockbuster acquisition is a major setback for Illumina after its several years-long quest to bring cancer screening leader Grail fully back into the fold.
However, while it erases Illumina’s dreams of dominating the multi-cancer early detection market, analysts say divesting Grail ultimately removes a significant overhang of regulatory uncertainty that has weighed on Illumina’s stock.
Sykes said investors can now shift focus back to Illumina’s strong underlying genomics business, which tops $5 billion in annual revenue. Illumina holds an commanding 80% global market share in gene sequencing systems.
For Grail, despite losing its deep-pocketed Illumina parent, analysts say independence could reinvigorate Grail’s commercial rollout of Galleri after years in limbo amid the FTC case.
Jefferies analyst Brandon Couillard said an independent Grail may more easily partner with other gene sequencers and healthcare firms to accelerate real-world use of its Galleri multi-cancer screening test. Galleri checks for over 50 cancer types by scanning blood for tiny DNA fragments shed by cancer cells.
Future Outlook
Couillard believes Grail’s Galleri still has multibillion-dollar revenue potential from U.S. adoptions over time as a supplementary diagnostic after traditional screenings like mammograms.
Grail aims for Galleri to cost under $1000 per scan upon commercialization – an ambitious target. But with cancers usually requiring expensive late stage treatments, Galleri could save many lives and significant costs if it enables earlier detection. Grail is also studying expanding into detection of heart disease.
Meanwhile after boosting its investments in early cancer diagnostics in recent years, Illumina retains partnerships with over 100 startups in the space aside from Grail.
Illumina CEO deSouza said the genetics leader “will continue to develop partnerships that advance cancer screening and drive creative genomics solutions.” This signals Illumina still sees major long-term potential in the cancer early detection space amid Grail’s independent future.
So while the unraveling of its biggest acquisition marks a detour in Illumina’s Journey, analysts say the gene sequencing giant’s prospects remain strong in fueling the genomics revolution – including still-critical contributions to emerging blood testing innovations like Grail’s Galleri.
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