In a setback to biotechnology company Illumina (NASDAQ:ILMN), the U.S. Federal Trade Commission (FTC) has ordered it to unwind the $7 billion acquisition of cancer detective test maker Grail. The regulator believes that the Grail acquisition impacts competition and innovation in the U.S. market for cancer tests.
It is worth noting that Illumina spun off Grail in 2016 but retained a small stake. However, the company bought back Grail in 2021, despite the lack of regulatory approval from the U.S. and Europe. The FTC’s decision reverses an administrative law judge’s September 2022 ruling that dismissed the antitrust charges brought by the antitrust body.
The FTC contends that the Grail deal would “diminish innovation in the U.S. market for MCED [multi-cancer early detection] tests while increasing prices and decreasing choice and quality of tests.”
It noted that Illumina is the “only viable supplier” of next-generation sequencing platforms necessary for MCED tests. Consequently, the FTC is concerned that the company can easily prevent Grail’s rivals by “raising their costs or withholding or degrading access to supply, service, or new technologies—inputs on which MCED test developers rely.”
Illumina to Fight FTC’s Decision
Illumina said in a statement that it intends to appeal the FTC’s decision in a federal court and will seek an expedited decision. The company added that the FTC’s order to unwind the acquisition will be “automatically stayed pending appeal.” Illumina believes that it has a “strong case on appeal,” given the administrative law judge’s favorable decision in September 2022.
Last month, Illumina challenged the European Commission, as the European Union’s regulatory body had raised similar concerns about the Grail acquisition. The company seeks to resolve both FTC and European appeals by late 2023 or early 2024.
Meanwhile, billionaire activist investor Carl Icahn has pushed Illumina to spin off Grail and put an end to its regulatory battles. Icahn has proposed three seats on Illumina’s board. However, the company opposed Icahn’s nominees as it felt that they don’t have the required skills or expertise.
Is Illumina a Buy, Hold, or Sell?
Wall Street is sidelined on Illumina, with a Hold consensus rating based on six Buys, seven Holds, and three Sells. The average price target of $238.29 indicates 3.6% upside. Shares have advanced nearly 14% year-to-date.