Illumina and Antitrust’s Unholy Grail

WSJ editorial.

"Antitrust regulation is running off the rails in Europe and the U.S., and their citizens could wind up as collateral damage. The latest example is the European Commission’s order Tuesday to derail gene-sequencing giant Illumina’s acquisition of cancer blood-test startup Grail.

Grail has developed a lab test that can identify more than 50 cancers at early stages with a simple blood draw. Screenings don’t exist for most cancers, so many aren’t caught until they’ve spread and are harder to treat. While Grail’s test can’t catch all cancers, it can detect the 12 deadliest with about 76% accuracy, and its false positives are less than 1%. The tests could save tens of thousands of lives a year if widely adopted.

Enter Illumina, which makes platforms that sequence genetic tests for the likes of fetal abnormalities and Covid variants. While Illumina dominates this market, its growth in recent years has slowed amid competition from China’s BGI Group. Illumina saw a growth opportunity two years ago by making an $8 billion bid for Grail.

Illumina says its experience negotiating insurer reimbursements for genetic tests could accelerate Grail’s commercial adoption. Because most insurers currently don’t cover Grail’s test, the startup last quarter generated only $12 million in revenue and ran an $187 million operating loss. This makes the EC’s order blocking the deal all the more bizarre.

The acquisition doesn’t qualify for antitrust review under the European Union’s bylaws because Grail doesn’t do business in Europe. Yet Europe’s competition commissioner Margrethe Vestager has invoked a provision in the EU’s merger regulations that lets member states refer transactions to the commission when their governments lack jurisdiction.

Six countries did so and, voila, Ms. Vestager now claims authority to force Illumina to unwind the acquisition. She is tag-teaming with the U.S. Federal Trade Commission, which last year also moved to block the deal. Both regulators claim the merger could impede competition in the embryonic multiple cancer-early detection market.

“Illumina is currently the only credible supplier of a technology allowing to develop and process these [multi-cancer early detection] tests,” Ms. Vestager said. “With this transaction, Illumina would have an incentive to cut off Grail’s rivals from accessing its technology, or otherwise disadvantage them.” But Grail currently has no rivals.

An FTC administrative law judge last week ruled against the FTC on the Illumina-Grail tie-up primarily on this point. While some companies are working to develop tests that might someday compete with Grail’s, expert testimony during the FTC trial estimated that it could be five to seven years before one even launches. The judge noted that Illumina has promised the same contractual terms to future competitors as to Grail. Ms. Vestager says Illumina can’t be trusted to honor its contractual promise. But companies could sue if it doesn’t.

U.S. courts have repeatedly ruled that antitrust theories and speculation can’t trump facts. But U.S. and European antitrust regulators want to set the precedent that they can block acquisitions even when there is no evidence of imminent harm to consumers or competitors. They merely want to stop big companies from growing bigger.

Illumina plans to appeal the EC order, but the legal uncertainty could hamper Grail’s growth. The loss may be fewer cancers cured."