Last year, 2 million Americans were diagnosed with cancer. Over 600,00 of those people died, costing their loved ones an estimated $150 billion, according to the National Cancer Institute — an amount that is expected to rise as Americans age and “as new, and often more expensive, treatments are adopted.”
In the face of that daunting situation, Illumina and its former start-up, Grail, say they can save lives and reduce costs through a vertical re-merger. That move would combine Grail’s leading-edge cancer-detection technology with Illumina’s manufacturing and regulatory capabilities, the two California-based companies say.
The proposed re-merger, first unveiled last September, would help Grail launch commercially as a multi-cancer, laboratory-developed test for early cancer detection, the companies said. Grail’s blood test, Galleri, can detect over 50 types of cancer, including “45 of which have no recommended screening in the United States,” their statement said.
However, regulators on both sides of the Atlantic — the U.S. Federal Trade Commission and the European Commission (EC) say the merger risks increasing costs for Grail’s competitors and consumers. Both have intervened in the merger — something critics say is a prime example of government overreach that risks cancer-fighting innovation.
Why have the FTC and EC intervened?
In March, the FTC sued to stop the acquisition, with acting Chairwoman Rebecca Slaughter saying that because that Illumina is the only “commercially viable” player in its segment of this market, purchasing Grail “would likely reduce innovation … diminish the quality of … tests, and make them more expensive.” purchasing Grail “would likely reduce innovation…diminish the quality of…tests, and make them more expensive.” The European Commission filed its opposition after reviews were requested by member states, such as France, Belgium and Iceland, citing many of the same competition concerns as the FTC. Illumina and Grail are contesting both agencies’ opposition.
There are two general types of mergers and acquisitions. The first is horizontal — competitors purchasing competitors to increase market share. The FTC regularly blocks these types of mergers because of monopoly and market-concentration concerns. But the Illumina-Grail merger is vertical — companies purchasing others in different parts of a given supply chain to increase efficiencies.
“A horizontal merger example would be McDonald’s purchasing Burger King,” said Milt Johns, managing member at Executive Law Partners, PLLC. (A mergers and acquisitions attorney, he has no involvement in the Illumina-Grail merger.)
“McDonald’s would make this purchase to increase its share of the fast-food restaurant market. A vertical merger would be McDonald’s purchasing Perdue Chicken to improve its ability to procure, ship, and provide to customers chicken at a price which McDonald’s better controls.”
The FTC’s Illumina-Grail lawsuit was its first in decades to stop a vertical acquisition, though the agency has stopped other mergers without going to court. In a press release, Illumina said it “will leverage its global scale of manufacturing and clinical capabilities, as well as its global regulatory and reimbursement expertise” to help Grail improve the commercial viability of early cancer detection.
“Vertical mergers are no threat to competition,” said Peter Roff, a Center for a Free Economy Media fellow and a Newsweek columnist “They’ll spark it because the marketplace abhors a vacuum. The FTC is interposing itself between Illumina and Grail ostensibly to protect consumers, but it is the interposing — not the merger — which will actually harm consumers.”
Open Markets Institute policy analyst Daniel Hanley, who said that while he is not aware of the details of the Illumina-Grail merger, he views the FTC’s action as protecting Grail’s competitors from the threat of “foreclosure.”
“Dominant firms can use vertical mergers to foreclose competitors from accessing essential inputs, distributors, or customers,” Hanley said. “This lack of access could lead to competitors exiting the marketplace, or shutting down their operations entirely, or deter future competitors from entering the market for no reason other than the fact that a firm increased its market power from a merger.”
The legal battle
The FTC filed two lawsuits related to the Illumina-Grail plan earlier this year. The first was to argue against the merger on the basis of competition because of Grail’s market advantages if it rejoins Illumina. The second was to secure a preliminary injunction until the first case is decided. The FTC dropped the second lawsuit because of the European Commission’s review, but retained the ability to refile their complaint.
The agency declined to comment on the case to Zenger, with a spokesperson e-mailing that “the FTC almost never comments on a case in litigation.” When it dropped the preliminary injunction effort, the FTC said doing so will save taxpayer money, since the European Commission’s review makes that effort redundant.
Taking an opposite view on this are U.S. Senator Ted Cruz (R-Texas) and business publisher Steve Forbes. Forbes accused the FTC of “ceding jurisdiction” to European regulators, while Cruz Tweeted the FTC was letting the Commission decide “when American companies get their day in court.”
Not surprisingly, Illumina and Grail have their own reasons for opposing what they view as regulatory interference. In its court response to the FTC, Grail accused the U.S. regulators of using delaying tactics. “The FTC purports to seek a routine dismissal without prejudice for the sake of efficiency,” the company wrote. “However, there is nothing routine or efficient about the FTC’s request.”
Economist and American Action Forum president Douglas Holtz-Eakin says the way the FTC dropped its lawsuit is “gaming the system, not saving taxpayer dollars.”
“The FTC says it is saving taxpayer resources by not engaging in an injunction lawsuit,” he told Zenger. “If that was their goal, they would have asked for their suit to be dismissed with prejudice and let the European Commission’s decision stand — no matter what it ends up being. Instead, the FTC wants a second bite at the apple if the Commission decides differently from what the FTC desires. That’s gaming the system, not saving taxpayer dollars.”
Holtz-Eakin added, “the European standards for evaluating mergers and standards are not consumer-based. The U.S. is based upon consumer welfare standards. I’m not confident the European Commission would ever get to the right decision.”
Action vs. inaction
While the FTC and the European Commission weigh the pros and cons of a Grail/Illumina merger, critics say the delay in doing that evaluation risks slowing increased commercialization of early-stage cancer testing.
Illumina has publicly declared two initiatives to address the concerns of the FTC and European Commision concerns. In a press release, Illumina promised “to drive down [Illumina sequencing] prices by more than 40 percent by 2025.” It also made offers “of equal and fair access” of its sequencing technologies to clinical oncology customers — in other words, Grail’s competitors would have equal access to Illumina’s industry-leading technology.
Open Market Institute’s Hanley said that the FTC should reject Illumina’s promises.
“There’s a difference between what a corporation states to justify a merger and what actually results from a merger. Many companies make promises that they don’t keep. For example, AT&T told Congress that it would be ‘irrational’ for the company to prevent its content from accessing the widest possible audience. After merging with Time-Warner, AT&T restricted its content from streaming on Netflix. Similarly, in a post-trial brief, AT&T claimed that its merger would reduce consumer prices. AT&T claims were again proven to be sham when they eventually raised prices for DirecTV Now.”
The costs of cancer are significant, as are the potential for savings through early-stage cancer detection and treatments. A 2020 study in a journal of the American Association for Cancer Research found that “cancer-attributable costs in the United States are projected to rise” to rise from $183 billion in 2015 to $245 billion in 2030.
The study found that cancer patients at the end of their lives averaged $105,500 in medical costs. The National Cancer Institute and the American Cancer Society’s advocacy arm note that indirect costs — such as loss of income, hotel and travel costs for family members, and child care expenses — add to the financial stress of fighting cancer.
Grail’s price-per-test can be as high as $1,000. A 2017 paper estimating the financial savings of greater early-stage cancer treatments made a “conservative estimate” of $26 billion in nationwide annual savings. The authors admitted the estimate was extrapolated because “data is scarce, incomplete and scattered.”
Stifling or driving the cancer-detection?
In the statement announcing its anti-merger lawsuits, the FTC wrote that it works to promote competition and that “Grail is one of several competitors racing to develop…liquid biopsy tests” It is these competitors, and the cancer patients who will benefit from widely-available early-stage cancer tests, that the agency says it is protecting.
The questions are whether the Illumina-Grail merger’s short-term benefits to consumers— faster commercial availability of early-stage cancer detection—and if Illumina’s long-term promises will convince a judge that the FTC is wrong.
It won’t b e decided any time soon. The administrative lawsuit won’t be heard until August, after which the courts will decide if the FTC’s action is hurting or helping consumers.
(Edited by Matthew B. Hall and Bryan Wilkes)
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