Big tech skates, biotech exit gets blocked

 Cross-posted from the Bio Business Blog

A novel antitrust strategy by the Biden Administration’s Federal Trade Commission and the EU is seeking to end an acquisition by Illumina that would accelerate the availability of a cell free cancer screening. More seriously, if widely adopted, it would make it much harder for successful startups to exit — and thus for them to raise money and be formed in the first place.

Ironically, the government agencies are seeking to block Illumina from paying $8 billion to buy back  Grail, its own spinoff company. As the WSJ editorial board concluded Friday:

Government Race Against a Cure

In 2016 Illumina formed Grail with the goal of developing a blood test that could detect DNA from cancer cells before people show symptoms. A year later Illumina spun off Grail. This let Grail raise venture capital to finance large clinical trials while Illumina focused on building its other businesses.

Fast forward four years. Grail’s technology can now reliably detect 50 cancers at early stages with a simple blood draw. While the tests aren’t 100% accurate, the false positive rate is less than 1%, which is lower than for mammograms and PSA prostate tests. Grail’s technology can also detect the 12 most deadly cancers with 60% accuracy and has the potential to reduce false cancer diagnoses and invasive screenings while increasing early detection of aggressive cancers.

Grail was considering an IPO last fall to raise $100 million when Illumina made a more attractive offer. Illumina says its regulatory expertise can accelerate the commercialization of Grail’s technology. Biotech startups often struggle to obtain regulatory approval and insurance reimbursements.

The argument is virtually unprecedented: most mergers (since the Teddy Roosevelt days) have been fought based on horizontal combination in restraint of trade, while Illumina is a strategic supplier to Grail (and also supplies to other firms).

What seems particularly disreputable is that the FTC is seeking to kill the merger without allowing a court to rule on the merits of its arguments. Instead, the FTC is hoping to harass and stall the applicants until the Dec. 20 expiration of the agreement.

The reality is that little companies develop new technologies, but can never scale as quickly as a big company. The June 3 editorial suggests that Grail’s competitors are fighting the merger to slow Grail’s rollout and let them capture more market share.

Meanwhile, the EU is asserting authority over a transaction (between US firms) for which they have no jurisdiction because Grail has no operations there. As the WSJ wrote on May 29:

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.”

Finally, beyond the policy issues are the sheer scope of transactions on the global economy. Illumina is a $3.4 billion/year company, not even on the Fortune 500 (#687). Meanwhile, Amazon ($420b), Google ($182b) and Facebook ($86b) dominate their respective segments — in a way no oil or car company ever did — and continue to stifle competition at every opportunity. A decade from now, which intervention will make the most difference to society and the vibrancy of the economy?