Regulatory Hurdles Block a Cancer Miracle

Illumina’s CEO Francis deSouza explains the Grail diagnostic test and the FTC action that risks slowing it down

By Allysia Finley of The WSJ. Excerpts:

"the development of a blood test that can now detect 50 types of cancer and has the potential to save tens of thousands of lives a year if it becomes widely available. But regulators may slow the process.

The Federal Trade Commission last month wrapped up an administrative trial in which it seeks to block Illumina’s $8 billion acquisition of Grail, which makes the blood test. Illumina founded Grail in 2015 and spun it off a year later. The Menlo Park, Calif.-based start-up is named Grail because scientists have long been on a quest for a blood test that can diagnose cancer early."

"The Grail test doesn’t pick up every cancer, and its sensitivity varies by the type and stage of the disease. But it can detect the 12 deadliest cancers with 60% accuracy. Grail estimates that adding the blood test to existing screenings could reduce late-stage cancer diagnoses by more than half among patients 50 to 79, which would translate into a 26% overall reduction in five-year cancer mortality. Patients who are diagnosed at an early stage are more than four times as likely to survive at least five years, and their odds are 10 times as high for pancreatic, liver and lung cancer."

"A blood test for cancer became possible thanks to recent advances in genetic sequencing and machine learning. Tumors shed DNA into the blood that signals a cancer’s locations. Grail’s test scans for these DNA fragments.

After Dr. Halks-Miller’s discovery, more research, clinical testing and investment were needed before a test could launch to the public. Illumina spun off Grail so that it could raise more money for studies. Grail ultimately raised $1.9 billion in capital from investors including Jeff Bezos and Bill Gates. Illumina maintained a 12% stake. With a commercially viable product nearly in hand, Grail in September 2020 was exploring an initial public offering. That’s when Illumina swooped in with its $8 billion offer."

 "Illumina is the leading manufacturer of gene-sequencing machines, which run an array of DNA-based tests including Grail’s. Its machines were the first to identify the novel coronavirus in late 2019, and more than 70 countries are using them to find new variants. Moderna and Pfizer also relied on DNA sequencing from Illumina machines to develop their mRNA vaccines."

"The CEO adds that the acquisition would let Illumina speed up the rollout of Grail’s tests: “We already have large-scale production labs where we run other genetic tests, so we can scale up their tests very quickly into our production labs.”"

"The company’s dominance in the DNA-testing market, however, attracted regulatory scrutiny. In March the FTC sued Illumina and Grail to block the acquisition, arguing that it would “lessen competition in the U.S. multi-cancer early detection (‘MCED’) test market by diminishing innovation and potentially increasing prices.”

Nonsense, Mr. deSouza says. “Today, there is nobody who is even starting the studies to develop a 50-cancer test like Grail, and once you start the study, it’s still a few years before you actually get the test. We think there will also be blood tests for single cancers, for colorectal cancer and other cancers. Those won’t compete with Grail. They will be complementary to Grail.”

Illumina promised the FTC it wouldn’t thwart Grail’s potential competitors and would give its clinical oncology customers contractual guarantees of “equal and fair access.” The FTC wasn’t satisfied. Although it asked the federal judge overseeing the case to dismiss its complaint in June, it’s still alive as an administrative proceeding.

The FTC might have withdrawn the lawsuit because it was worried it might lose in court. Instead, the FTC is planning to let European regulators run out the clock on the deal, which had to be completed by Dec. 20 under the terms agreed to by Illumina and Grail.

The European Commission invoked Article 22, an obscure provision in its competition rules that lets it review deals at the request of member countries when they don’t have jurisdiction under their own laws. Illumina is contesting the European Commission’s claim of jurisdiction. “Grail has no business in Europe. The deal is between two American companies. It should not need to be reviewed by the European Commission,” Mr. deSouza says. “Imagine if China does that. Imagine if suddenly everybody can assert jurisdiction globally on any merger.”

Frustrated by the hangups, Illumina and Grail closed the deal in August despite the risk that it could be undone if it loses in U.S. or European courts. Last month the FTC held its own administrative trial, which Illumina is likely to lose. Unsurprisingly, the FTC has a nearly perfect batting average before its own administrative judges.

Illumina plans to appeal an adverse FTC ruling in federal court, where it seems likely to prevail. The U.S. government hasn’t successfully challenged in court a vertical merger—a combination of noncompeting businesses that operate in different parts of the supply chain—since 1972. But Mr. deSouza says the legal snags will cost lives since Illumina doesn’t plan to integrate Grail into its business until it clears legal hurdles in Europe. As for the U.S., the Supreme Court likely wouldn’t hear a case until 2025, so Illumina faces the risk that the deal could be blocked for years."