52.3 billion! Sequencing giant Illumina takes back adopted son

Although the Federal Trade Commission (FTC) has sued to block the transaction and the European Union is launching an antitrust investigation, the acquisition case has still been completed.

On August 18, 2021, global sequencing leader Illumina announced that it has acquired GRAIL, a leader in cancer early screening.

GRAIL was originally founded in 2016 with funding from Illumina. After 5 years of development, the pan cancer gene early screening product Galleri, which will be launched in 2021, has begun its commercialization process. Galleri is based on detecting cfDNA methylation in blood and covers over 50 types of cancer, with market potential far exceeding similar products. Like a carefully nurtured adopted son finally coming of age! Illumina also had the idea of officially joining the legitimate lineage.

On September 21, 2020, Illumina announced its acquisition of GRAIL for the first time. GRAIL accepts Illumina's acquisition offer of 52.3 billion RMB (8 billion USD). The transaction will be completed in cash and stock form, with $3.5 billion in cash and the remaining $4.5 billion in Illumina common stock. Illumina will own up to 93% of the merged shares, while existing GRAIL shareholders will own the remaining 7%.

Illumina established GRAIL separately in the past to control costs and attract external capital to share risks in an area full of uncertainty; As the achievements of GRAIL gradually emerge and commercialization is imminent, recycling GRAIL is also a matter of course. However, as a leading enterprise in the field of early screening for tumors, will GRAIL's accumulated patents once again become Illumina's big stick to crack down on industry competitors in the future?

The United States and Europe are investing in anti-monopoly investigations one after another

Illumina is known as the gene sequencer oligopoly, once occupying 70% of the global market share, with 90% of gene sequencing data provided by its equipment. The news of Illumina's acquisition of GRAIL immediately attracted high attention from regulatory authorities, and the United States and the European Union immediately launched anti-monopoly investigations into it.

FTC initiates lawsuit first

Illumina, as the only DNA sequencing supplier in the United States, is suspected of having an economic motive for acquiring GRAIL.

The Federal Trade Commission (FTC) believes that the Galleri test can be used to detect up to 50 types of cancer, most of which currently do not have early screening methods. This test product can save millions of lives worldwide. The acquisition will put GRAIL's competitors at a disadvantage, hindering competition and innovation in the industry, ultimately harming consumer rights protection and constituting industry monopoly.

FTC indictment

Accordingly, the FTC has filed a lawsuit against Illumina in the United States District Court for the District of Columbia, with an administrative trial scheduled for August 24, 2021.

EU expands review

Although Illumina and GRAIL are both American companies, in the context of global trade, any industry monopoly that arises will have a global impact.

The European Commission revised the merger regulations in March this year. France has requested an examination of Illumina's acquisition of GRAIL in accordance with Article 22 (1) of the new EU Merger Regulation, which allows member states to request an examination of mergers that are not at the EU level but may affect trade within the single market, particularly those that may seriously impact competition within the requesting member state. After France requested a review, Belgium, Greece, Iceland, the Netherlands, and Norway also requested the same review.

On April 20, 2021, the European Commission decided to initiate a review process for Illumina's acquisition of GRAIL and stated that a comprehensive investigation will be conducted into the merger case. On July 22nd, the preliminary review was completed and a second round of review will be conducted. The review results will be judged before November 29th.

Illumina's rebuttal

Firstly, Illumina believes that it has no plans to sell Galleri in Europe, therefore the EU is not qualified to review the merger case.

GRAIL is currently selling the Galleri test in the United States for $950, which is currently not covered by insurance reimbursement. Illumina's experience in market development will help accelerate market coverage and reimbursement.

GRAIL was formed by Illumina, and its first batch of employees also came from Illumina. Illumina and GRAIL are not competitors, this is a vertical acquisition.

Illumina has committed to taking these remedial measures to the US Federal Trade Commission and the European Commission: guaranteeing a 12 year supply agreement to US/EU customers, and promising to reduce sequencing prices per GB by 40% by 2025.

GRAIL standing on the shoulders of giants

Thanks to Illumina's full support, GRAIL can be said to have developed smoothly and created three "firsts" in the industry: the largest financing scale, the best early screening technology, and the largest number of clinical trial participants.

GRAIL Financing Path

In 2016, GRAIL was co founded by Illumina and several other companies with a capital investment of $100 million. Over the next few years, it has accumulated more than $2 billion in financing, setting a record for the highest financing in the field of early cancer screening.

In March 2017, GRAIL announced the completion of its Series B initial funding round, with an amount of $900 million, led by Arch Venture Partners, Johnson&Johnson, Amazon Bristol-Myers Squibb、Celgene、McKesson Ventures、 Merck, Tencent Holdings, and Varian Medical Systems are all on the investor list.

In June 2017, GRAIL merged with Cirina, and Cirina became GRAIL's operating subsidiary. Cirina is a company that also focuses on early cancer diagnosis, co founded by Professor Lu Yuming and his colleagues Professor Zhao Huijun and Professor Chen Junci from the Chinese University of Hong Kong, as well as major investor Decheng Capital. The merger of the two companies further consolidates GRAIL's research capabilities and lays an important foundation for continuing to develop global commercial product markets, including Europe, America, and Asia.

In May 2018, GRAIL announced the completion of a $300 million Series C funding round. The leading investor in this round of financing is Huiqiao Capital, with Tonghe Yucheng and Hillhouse Capital also participating in the lead investment. Blue Pool Capital, China Merchants Securities International CRFInvestment、 Famous domestic and foreign institutions such as Huangpu River Capital, ICBC International, Sequoia Capital China, and Yao Mingming also participated in the investment.

On September 9, 2020, GRAIL announced its foray into NASDAQ, but less than half a month later, it was acquired by Illumina and its IPO journey came to a sudden halt.

Milestones in the field of early screening Galleri

Galleri, a multi cancer early detection product, is used for cancer screening in asymptomatic populations over 50 years old. It has the ability to detect more than 50 types of cancer with one blood tube. In May 2019, it was approved by the US FDA as a breakthrough device, which is a milestone event for both the global cancer early screening field and GRAIL company.

The breakthrough device certification from the US FDA typically grants products and devices that provide more effective diagnosis for life-threatening diseases such as cancer, in order to accelerate the development, evaluation, and review of medical devices and empower them to provide timely services to patients and healthcare providers.

Galleri is a tumor detection product based on cfDNA methylation. Researchers have found that when tumor cells in cancer patients rupture, a circulating tumor DNA (ctDNA) is released, which can be compared with known tumor mutation gene sequences to obtain more tumor information. This has clinical guidance significance for early screening and medication of tumors.

But the difficulty lies in the extremely low ctDNA content in plasma, and the high background noise of second-generation sequencing. Tumor signals are easily completely submerged in the background noise, which reflects the importance of capture technology.

Therefore, in addition to a large amount of funding for backrest support, a large number of clinical trials are also needed

The largest clinical trial in the entire industry

Typically, tumor NGS companies choose to develop tumor companion diagnostic products while conducting early screening, in order to achieve faster commercialization; GRAIL, on the other hand, has shown great patience by choosing to focus on the field of early screening for tumors and continuously collecting data from large-scale clinical studies to refine its products.

Principle of Target Selection for CCGA Detection

In 2016, GRAIL initiated a clinical study on circulating cell-free DNA atlas (CCGA). CCGA is a prospective, observational, longitudinal clinical study aimed at obtaining genomic cancer signaling features in the blood to identify populations with or without cancer. The study consists of three sub studies.

Through collaboration with multiple academic centers, CCGA enrolled over 15000 participants with (56%) or without (44%) cancer. Use comprehensive targeted panels and ultra deep sequencing strategies to analyze their blood samples. The project plans to track participants for five years, with a focus on comparing the heterogeneity or diversity of cfDNA patterns between healthy individuals and patients with different stages and types of cancer.

On March 30, 2020, GRAIL released the research results of the CCGA (Circulating Cell free Genome Atlas) project.

The results showed that GRAIL's cfDNA targeted methylation analysis method based on liquid biopsy can distinguish more than 50 types of cancer in multiple stages, including high mortality cancer and early-stage cancer without screening guidelines, with specificity>99% and a single false positive rate<1%. The sensitivity of this test for stage I-III cancer is 43.9%, and for stage I-IV cancer it is 54.9%. When detecting cancer signals, the detection can also locate the tissue origin of cancer with 93% accuracy.

Meanwhile, the study utilized information from the SEER database to simulate the impact of early cancer detection on cancer mortality. The results show that if one-third of stage IV cancers are diagnosed in stage III, one-third in stage II, and one-third in stage I, the expected number of cancer deaths will decrease by 24%.

Formally entering the midstream market

As one of the three giants in the field of gene sequencing (the other two being Roche and BGI), Illumina's core advantage and label have always been in the upstream market.

After acquiring the British genetic variation sequencing service company Blue Gnome in 2011, Illumina broke the previous situation of not competing with customers and officially entered the midstream market. Up to now, Illumina's business portfolio has encompassed various aspects of gene sequencing technology, including sequencing technology, sequencing reagents, test sample processing, and test data analysis.

In 2013, Illumina also acquired Verinata Health, a company specializing in NIPT. And in 2014, it formed a patent joint venture with Sequenom, which holds the core patent of NIPT "540", continuously suppressing its customers and major competitors in the NIPT industry, Natera and Ariosa Diagnostics, until today.

So acquiring GRAIL and directly competing with midstream service providers in specific niche areas is not Illumina's first attempt. It acquired technology leading enterprises at critical moments and entered the huge potential clinical diagnostic market, seeking new business growth points.

Currently, Illumina is also the only supplier of sequencing machines used by GRAIL for genome testing. Therefore, it is quite certain that after the successful acquisition, Illumina may extend from a simple sequencer provider to downstream applications, further consolidating its dominant position in the field of DNA sequencing.

The big cake of early screening for tumors

At present, there are no recommended screening methods for most deadly cancers, and most cancers are already in advanced stages when discovered. Among patients diagnosed only after cancer has spread, the five-year survival rate is only 21%, while among patients diagnosed in the early stages before cancer spread, the five-year survival rate is 89%. If more than 50% of cancers are found at an early stage, millions of lives can be saved worldwide every year, and the incidence rate caused by invasive treatment can be greatly reduced.

GRAIL， The cost control of its commercialized product Galleri will crush its competitors and gain almost all advantages.

According to GRAIL's prospectus, the expected target user base for Galleri is approximately 52 million people. With a unit price of $1400 and a penetration rate of 1%, it is estimated that Galleri will generate over $700 million in revenue in its first year of listing, while Illumina's annual service business is currently only $614 million.

Even if Illumina fails in the antitrust case a few months later, it can still recoup a large amount of funds by facilitating the listing of GRAIL. However, the big cake of early screening for tumors is still very tempting. Let's wait and see what the final outcome of this acquisition case will be!