European Commission Prohibits Acquisition of Grail by Illumina
On 6 September 2022, the European Commission (the Commission) prohibited the acquisition of cancer detection test start-up Grail by genetic and genomic analysis firm Illumina (see, attached Commission press releases). This decision formed the dramatic culmination of a procedure which the Commission had started on 19 April 2021 at the request of France, which was later joined by Belgium, Greece, The Netherlands and European Economic Area countries Iceland and Norway (see, Van Bael & Bellis Life Sciences News and Insights of 22 April 2021). The Commission considered to have that ability pursuant to Article 22 of the EU Merger Regulation which confers the power on the Commission to review proposed acquisitions and mergers that would normally escape its jurisdiction because the transactions do not satisfy the turnover thresholds specified by the EU Merger Regulation. On 13 July 2022, the EU’s General Court confirmed the Commission’s jurisdiction over this transaction (see, Van Bael & Bellis Life Sciences News and Insights of 14 July 2022).
Illumina is the leader in the supply of next generation sequencing (NGS) systems for genetic and genomic analysis and, according to the Commission, the only suitable supplier of NGS technology to run early cancer detection tests.
For its part, Grail is developing a cancer detection test which, based on a simple blood sample, will allow for the detection of different cancers at an early, pre-symptomatic stage.
According to the theory of harm which the Commission relied on to block the transaction, Illumina would have had both the ability and the incentive to obstruct Grail's rivals. First, Illumina’s ability to foreclose the competitors of Grail supposedly results from its position as the sole supplier of suitable NGS systems, a reliable support network and a solid track record. Both Grail and its competing early cancer detection test developers would therefore have been dependent on Illumina for running their tests. Second, Illumina’s incentive to thwart Grail’s competitors stems from the lucrative character of the future market for early cancer detection tests to which it would have had direct access through Grail. The prospective sales of cancer tests made possible by Grail would have allegedly dwarfed the revenues which Illumina would have foregone in limiting sales to Grail’s competitors or engaging in other foreclosure strategies.
The Commission added that the remedies which Illumina had offered to cure the harm to competition were not effective and were easy to circumvent. Illumina was prepared, first, to create the setting for a new credible NGS system supplier to emerge. However, the Commission judged the patent strategy which Illumina had developed for that purpose to be insufficient. Illumina also promised, second, to offer until 2033 comparable supply conditions to Grail's competitors as those which it would grant Grail for the sale of NGS systems. However, the Commission considered this remedy too complex and therefore difficult to apply and enforce.
Based on this, the Commission decided to block the acquisition. That decision stands in contrast with a US ruling by the Chief Administrative Law Judge who on 1 September 2022 rejected a challenge by the Federal Trade Commission against Illumina’s acquisition of Grail. This is why the Commission took pains to describe the extensive market test which it carried out prior to banning the transaction. Equally, the Commission went to great lengths to explain its reasoning over more than 600 pages which have not yet been made publicly available.
While Illumina announced that it would appeal the decision, the Commission indicated that it planned to take a further step ordering Illumina and Grail to unwind the transaction and restore Grail’s autonomy. Additionally, the Commission is pursuing a “gun jumping” procedure against Illumina and Grail because of the parties’ decision in breach of Article 7 of the EU Merger Regulation to implement the acquisition before the Commission concluded its merger control review of that transaction (see, Van Bael & Bellis Life Sciences News and Insights of 19 July 2022).