Illumina has filed for an annulment of the European Commission's decision to assess the proposed takeover of Grail. The maker of gene sequencing machines is trying to buy back Grail, which it had spun off, to boost its presence in the liquid biopsy market in a cash and stock deal valued between $7 billion to $8 billion.
The Commission accepted requests by seven European countries to review the deal under a rarely used piece of merger law in the belief "the combined entity could restrict access to or increase prices of next generation sequencers and reagents to the detriment of Grail's rivals."
- Illumina, which is already contending with regulatory opposition in the U.S., wants to annul what it sees as an "unprecedented and untimely decision to review" that it contends will "stifle innovation, fail patients and increase healthcare costs."
The EU probe is the latest glitch in the takeover bid, which was panned by Wall Street analysts who had questioned the rationale and underscored worries about competition now catching the eye of regulators.
In its announcing the review on April 20, the EU wrote "the combined entity could restrict access to or increase prices of next generation sequencers and reagents to the detriment of GRAIL's rivals active in genomic cancer tests following the transaction."
One of those Grail rivals, Exact Sciences, could benefit from the regulatory scrutiny.
The European Union typically reviews mergers when they cross thresholds based on turnover or revenue. Yet, in recent years officials have raised concerns the approach is a poor fit for digital and life sciences mergers. The concerns are exemplified by Facebook's $19 billion takeover of WhatsApp, a company with low sales but many users.
"A company's turnover doesn't always reflect its importance in the market," European Commissioner for Competition Margrethe Vestager said last year.
That line of thinking led to the EU to dust off an old piece of merger law. Article 22 dates back to 1989. Any merger that affects trade between EU countries can be referred to the Commission under Article 22, provided the deal threatens to significantly affect competition in the member state making the request.
The Commission contends the Illumina-Grail deal meets the criteria for review under Article 22. The Commission said "Grail's competitive significance is not reflected in its turnover," adding that it is "important to ensure that patients get access to [genomic cancer tests] as quickly as possible, from as wide sources as possible and at a fair price."
Illumina called the Commission's decision to review "unprecedented." Article 22 has been used in the past but the Commission's action and Illumina's opposition cover largely unchartered territory.
The Commission, by its own admission, "developed a practice of discouraging member states from requesting under Article 22 the referral of transactions for which they did not have jurisdiction." As such, Article 22 has rarely been used. The Commission identified two significant uses of the article in digital and one in life sciences. Officials approved the two digital deals. The life science deal, Johnson & Johnson's buyout of a Takeda Pharmaceutical patch, was stopped amid U.S. opposition.
Last month, the Commission set the stage for far more use of Article 22 by stating it will "encourage and accept referrals in cases where the referring member state does not have initial jurisdiction over the case."
The public statement came one month after the Commission reportedly wrote to member states to ask them to make an Article 22 request to review the Illumina-Grail deal. Illumina challenged the referral in French and Dutch courts but lost, leading it to continue its case at an EU level.
The outcome could have implications for other future life science deals.