DealLawyers.com Blog

Yesterday, the FTC overturned a prior administrative law judge’s ruling and ordered Illumina to unwind its 2021 acquisition of multi-cancer early detection (MCED) test maker GRAIL. Commissioner Christine Wilson, who resigned from her position effective at the end of March, concurred in her Democratic colleagues’ decision to order the divestiture.  This excerpt from the FTC’s announcement of the decision summarizes the basis for its ruling:

The Commission found that the acquisition would diminish innovation in the U.S. market for MCED tests while increasing prices and decreasing choice and quality of tests. This is extremely concerning given the importance of swiftly developing effective and affordable tools to detect cancer early.

The Opinion raises other concerns about the acquisition that support the Commission’s divesture order:

– Illumina is currently, and for the reasonably near future, will remain the only viable supplier of a critical input: NSG platforms necessary for MCED tests. Entry barriers prevent rival platforms from competing with Illumina’s high throughput, high accuracy, and favorable cost profile.

– Illumina can easily foreclose GRAIL’s competitors by raising their costs or withholding or degrading access to supply, service, or new technologies—inputs on which MCED test developers rely.

– Illumina has an enormous financial incentive to ensure that GRAIL wins the innovation race in the U.S. MCED market. Illumina stands to earn substantially more profit on the sale of GRAIL tests than it does by supporting rival test developers. And Illumina’s ample mechanisms for effecting foreclosure give it multiple ways to act on that incentive.

Illumina and GRAIL attempted to address antitrust concerns by implementing what they called “Open Offer” supply agreements.  Illumina claimed that these agreements provided customers with protections on service, supply, pricing, intellectual property, and confidentiality, and included several provisions that provided them provide parity with GRAIL.

The FTC rejected this approach, concluding that the supply agreements were an ineffective remedy that tackles harm on an ad hoc basis. Reflecting the agency’s strong distaste for behavioral remedies, the opinion concluded that such measures “simply cannot substitute for the incentives of a competitive marketplace.”

Illumina plans to appeal the FTC’s decision, but for now, it’s faced with an order to “unscramble the eggs.”  The company’s initial decision to close the deal without obtaining sign-off from antitrust regulators in the US & Europe was controversial, and Illumina is also currently facing a proxy contest led by Carl Icahn seeking board seats & calling for the deal to be unwound.

– John Jenkins