Life-sciences company Illumina Inc. is facing a labyrinth of antitrust hurdles on two continents as it seeks to save its planned $7.1 billion acquisition of Grail Inc., which is developing an early-stage cancer-detection test.
The deal, announced last September, could have important ramifications for cancer care and the future of both companies. It also has become something of a test for U.S. and European antitrust enforcers as they focus more on whether acquisitions of leading startups could slow innovation.
The U.S. Federal Trade Commission sued the companies in March to block the deal. Since then, the European Union has added an element of intrigue by invoking a new policy to claim a say on whether the combination of the two U.S.-based companies moves forward.
A hearing Friday in San Diego could determine the course of U.S. legal proceedings. Illumina has separately mounted a legal campaign overseas contesting the EU's jurisdiction.
San Diego-based Illumina develops and sells next-generation genetic-sequencing machines and the chemicals used in them. Grail, based in Menlo Park, Calif., was founded by Illumina and spun off in 2017. It has been developing liquid biopsy tests that examine blood samples for genetic signs of cancer, a product that, if successful, could have a significant impact in healthcare. Illumina says buying Grail back would allow it to scale up operations and expand access to the tests more quickly.
The FTC sees the deal differently, arguing it could harm competition in the testing market. Other cancer-test developers -- Grail's competitors -- have no choice but to use Illumina's instruments, the FTC alleged in its complaint, putting Illumina in a position to impede their efforts and "cause substantial harm to U.S. consumers, who would experience reduced innovation, as well as potentially higher costs and reduced choice and quality for these lifesaving products."
The commission voted 4-0 to bring the lawsuit, with Democrats and Republicans supporting it.
Illumina denies the allegations and says it would offer cancer-testing labs equal and fair access to sequencing. It has pushed for quick legal proceedings in a San Diego federal court that is set to begin considering on Aug. 9 whether to issue a preliminary injunction blocking the deal. But the FTC says those proceedings aren't appropriate right now, because the European developments mean Illumina can't close the transaction anyway.
Illumina is urging the U.S. court to keep the case on track, alleging the FTC is attempting to kill the deal through "procedural gamesmanship" instead of trying to prove its case.
Any material delay in the schedule "would make it nearly impossible for any court to make an informed decision regarding the fate of what defendants believe is a pro-competitive lifesaving transaction," lawyers for Illumina and Grail said in a Wednesday court filing.
The terms of the transaction expire in September but can be extended until December.
The FTC has a unique two-track system for challenging mergers. It can bring a case in its in-house court system, a process disliked by defendant companies, but the agency has to go to a federal judge if it wants an injunction to block the deal in the meantime.
The in-house trial on Illumina-Grail is set to begin Aug. 24, and the FTC says those proceedings will continue. Illumina, like past companies in its position, is most focused on the federal court proceedings, hoping that a win there would undercut the FTC's in-house trial, a process the company says is too slow.
The European Commission, the executive arm of the EU, wouldn't have been able to review the Illumina transaction under its traditional criteria that focus on issues related to revenue and market share. Under a new policy announced in March, the commission can now review a merger at individual countries' request on the grounds that it would affect trade between states and be a significant threat to competition.
Six countries -- France, Belgium, Greece, Iceland, the Netherlands and Norway -- made such a request for the Illumina deal, making it a test case for the new approach. The company has filed suit in the General Court of the European Union, arguing there is no European jurisdiction because Grail has no active business activities there.
A European Commission spokeswoman said the EU antitrust enforcer has asked Illumina to notify it formally of the transaction. She declined to comment on Illumina's statements about the EU review.
The change in European policy marks an effort by the commission to adapt its antitrust enforcement to a fast-changing marketplace where companies can expand with great speed, including through the acquisition of pivotal smaller businesses, the commission has said. Its March policy guidance changes nothing in the letter of the law but fundamentally changes how it is interpreted.
Potential red flags for merger review now include almost any deal done by a tech giant; almost any deal in a highly innovative sector, such as pharmaceuticals; a deal that might trigger complaints from third parties; and high-price acquisitions of companies with little revenue.
"It raises a lot of questions and uncertainty," said Salomé Cisnal de Ugarte, a partner at law firm Hogan Lovells in Brussels. "It can affect every transaction."
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