F.T.C. Orders Gene-Sequencing Company Illumina to Divest Acquisition
The Federal Trade Commission on Monday ordered Illumina, the leading maker of gene-sequencing machines, to divest Grail, a cancer-test developer.
The move by the F.T.C. is the latest development in a case seen by antitrust experts as a test of regulators’ efforts to stop big companies from buying fledgling innovators. The F.T.C. order follows the European Union’s decision last September to block the deal.
Illumina is also under pressure from the activist investor Carl Icahn. He began a proxy fight last month with Illumina’s current management, seeking board seats. Mr. Icahn contends that the Grail deal was an overpriced mistake. And he has called for the return of Illumina’s former chief executive, Jay Flatley, to replace the current chief, Francis deSouza, the architect of the Grail acquisition, according to The Wall Street Journal.
As the uncertainty over the fate of Grail has dragged on, Illumina’s stock price has declined by 37 percent over the past year. Illumina shares, which traded below $200 a share before Mr. Icahn began his offensive last month, slipped 1 percent on Monday, to close at $230 a share.
In a statement, Illumina said it would appeal the F.T.C. ruling in federal appeals court. It is also appealing the European decision. The company added that if it lost those appeals, it would “move expeditiously” to divest Grail, which it acquired in 2021.
The significance of the case, antitrust experts say, extends well beyond a single biotech deal, valued at $7.1 billion.
Antitrust regulators in both Europe and the United States have adopted a more aggressive stance toward such acquisitions. Grail has created technology for the early detection of some cancers. That business is tiny today but has the potential to become a big industry.
But Grail does not compete with Illumina in gene sequencing. In the past, courts have been reluctant to block or unwind such deals, known as vertical acquisitions.
Grail originated as a research project within Illumina, but was spun out as a separate company in 2016. Start-ups like Grail rely on gene sequencing in their blood tests for cancer.
Mr. deSouza has argued that Illumina has the financial resources and expertise to accelerate the adoption of Grail’s blood tests for early detection of pancreatic, head and neck, and ovarian cancers.
“We think this technology can be life saving,” Mr. deSouza said in an interview last year.
The F.T.C. chair, Lina Kahn, is a leading proponent of the pre-emptive strike policy in merger regulation. If the commission’s challenge is upheld by the courts, big tech giants and other dominant companies could see their acquisition campaigns curbed or face spinoff orders.
Despite an initial complaint from the F.T.C., Illumina defied regulators by going ahead with its purchase of Grail, betting it would prevail in court.
Last September, an administrative law judge ruled in Illumina’s favor, saying the deal did not raise sufficient antitrust concerns to undo the acquisition. The complaint was brought by the F.T.C. staff.
That decision was appealed to the full commission. The ruling on Monday came in a 4-0 vote by the commissioners, reversing the previous decision.
In a statement, the commission said it concluded that the acquisition would “diminish innovation in the U.S. market for M.C.E.D. tests,” multicancer early-detection tests, while “increasing prices and decreasing choice and quality of tests.”
The F.T.C.’s opinion also pointed to the danger that Illumina could use its position as the leading supplier of gene-sequencing services to undermine rivals to Grail by “raising their costs or withholding or degrading access to supply, service or new technologies.”
Illumina has said its main business for the foreseeable future will be gene sequencing, and it faces rising competition in that market. So its overwhelming incentive would be to supply gene-sequencing services to as many customers as possible.
