Illumina says US judge’s findings on Grail deal decimate EU’s prohibition

Illumina says the findings of the US administrative law judge invalidating the Federal Trade Commission’s bid to block its acquisition of Grail directly rebut the grounds of the EU’s prohibition of the same deal, MLex has learned.

Last week, the European Commission issued a decision to prohibit the life sciences company’s bid to acquire the cancer testing start-up. The EU regulator said the deal would have harmed competition in the emerging market for blood-based early cancer detection tests, and Illumina did not offer remedies sufficient to address these concerns.

The US FTC also vetted the deal, and based on similar arguments regarding the US market, sued to block the transaction in March 2021.

Illumina appealed, and the administrative law Judge D. Michael Chappell threw out the FTC case on Sept. 1, finding that after an exhaustive months-long trial, the US watchdog had failed to prove its case.

It was a surprising reversal of fortune for the FTC, which doesn’t often lose in its own administrative tribunal.

Illumina says Chappell’s ruling has implications beyond the US. In a document MLex has seen, Illumina used his findings to rebut the EU’s findings point-by-point.

Actual or potential competition

Both regulators said the merger threatened competition by giving Illumina the ability and incentive to foreclose Grail’s rivals’ access to an input they need to develop and market multi-cancer early detection, or MCED, tests. Both regulators — and Chappell — were persuaded that Illumina’s gene sequencing NGS technology and equipment are indispensable to that end.

So, central to the regulators’ case is the conviction that Grail has actual or potential rivals. In the press release announcing the veto, the commission spoke of an “innovation race” between Grail and “its rivals” on the “promising early cancer-detection testing market”.

Illumina says that in the EU’s prohibition decision — which is not yet public — the commission says that “a number” of Grail’s rivals have “recently made good progress in the development of their SCED (single-cancer early detection) and/or MCED pipelines.”

It’s a point Illumina has vehemently contested, insisting instead that Grail’s rivals are far behind.

Chappell did note in his ruling that Grail had put in place a “competitive intelligence team” that monitored a long list of companies “exploring the multicancer and cancer diagnostic space that were potential competitors to Grail, including Exact/Thrive, Guardant, Singlera and Freenome, which Grail identified as “Top Tier” threats. He said Grail even convened a “Thrive Red Team” in 2020 to “evaluate key questions about Thrive’s product, regulatory, reimbursement, clinical and commercial strategy.”

Yet Illumina points out that Chappell ultimately found that “most of the companies researching and developing MCED tests are still in the early stages of development” and “do not expect to launch a screening test for more than one cancer type for many years.”

Illumina also details Chappell’s reasoning for discounting rivals’ expressed intent to launch competing MCED tests, saying they had not taken the concrete steps to make that happen.

Chappell said the supposed rivals had not yet obtained approval for a single cancer screening test, determined which cancers it intends to add to its single cancer screening test, begun designing clinical trials, or conducted any clinical trials beyond trials conducted for a single cancer screening test.

Substitutability

Both regulators found that rivals’ tests were precise enough to substitute or even “leapfrog” Grail’s, but Illumina contends there is no substitute for Grail's test, which via a liquid biopsy can detect 50 cancers and their “tissue of origin” with 99.5 percent “specificity.” The tissue of origin means the tissue or location in the body where the cancer signal originates.

Illumina also countered, with findings from the US case, the EU's claims that "the number of cancers detected by Galleri is likely not unique," and its statement that "[s]everal players are already actively developing pan-cancer solution tests capable of detecting as many cancers as Galleri."

Illumina says that the EU’s prohibition decision asserts that “a number” of companies are “currently working” on developing competing tests “with features similar” to Grail’s Galleri.

Illumina once again cites the US judge, who said that “no company is close to being able to ‘begin to market and sell’ a test that screens for as many cancers as Galleri and that determines the tissue of origin as Galleri does, without also requiring further diagnostic tests." He said the possibility of detecting a vast number of cancers is a strong differentiating factor.

Chappell found that “[e]ven if tests in development could be expected to launch earlier than a 5- to 7-year range, the evidence fails to prove [the regulator’s] assertions that the MCED tests are ‘reasonably interchangeable’ with Galleri, or ‘will be close substitutes to Galleri.’”

Illumina says that the EU watchdog has cited Exact Sciences/Thrive CancerSEEK and Singlera’s PanSeer as up-and-coming contenders, but points out that the US judge's findings explicitly ruled them out.

Chappell said that, unlike Galleri, CancerSEEK doesn’t reach the Food and Drug Administration’s recommended specificity standard of over 99 percent without two blood tests and a PET-CT scan. It also needs a whole-body PET-CT scan to identify the cancer signal of origin. He found similarly that any patient testing positive on Singlera’s PanSeer would have to undergo an additional blood test and/or follow-up imaging to allow tissue of origin mapping.

Tissue of origin and “specificity”

The commission, Illumina says, has cast doubt on whether the ability to determine the tissue of origin is fundamental to substitutability, but it points out that Chappell disagreed.

“Tissue of origin is ‘a necessary component’ of an MCED test for the test ‘to be clinically useful.’ Without tissue of origin, doctors would ‘be on an endless diagnostic odyssey to figure out where the positive [cancerous] signal is coming from,’” he said, quoting from testimony produced in the trial.

According to Illumina, the commission also challenged the firm's argument that tests not as accurate as Galleri would not be acceptable substitutes for health systems or clinicians. It said that "no indication has so far been given by healthcare authorities in terms of minimum specificity required for an MCED or SCED test to be approved and reimbursed."

However, Illumina says that the judge said that the US FDA, the country's health agency, has recommended a specificity of over 99 percent for a screening test to be clinically useful.

“According to the US Food and Drug Administration, ‘high specificity is needed to minimize the potential harms from false positive results. A false positive result will lead to potentially harmful follow-up procedures and result in unnecessary anxiety to the individual,’” Chappell said.

While Chappell's ruling focused on the US, Illumina's reference to it is an indication it believes EU stakeholders will have similar requirements before they agree to approve and reimburse such a test.

Remedies

From early on in the US procedure, later repeated in the EU review, Illumina made a remedy offer — the Open Offer — to continue providing customers “unfettered access” to its gene-sequencing product over 12 years, and to cut its sequencing price by more than 40 percent by 2025.

According to Illumina, the commission said in its decision that the Open Offer “does not preclude all types of possible foreclosure strategies” because it has “significant gaps and loopholes.”

Illumina contrasts the EU’s findings with Chappell's, who said that the Open Offer would constrain Illumina from raising rivals’ costs or otherwise foreclosing them. He also found, contrary to the commission, that those commitments “provide effective mechanisms for monitoring and enforcement that will maximize Illumina’s compliance.”

He said: “to ignore the commitments in the Open Offer, and find instead that evasion or bad faith is likely, based on fears expressed by certain MCED test developers, is not justified.” Chappell also noted that “the self-interest and potential bias of Grail’s alleged rivals as witnesses in the government’s effort to undo the Acquisition cannot be ignored.”

Commission reaction

MLex asked the Commission for its reaction to Illumina's reliance on the US judge's ruling, and it responded that it "has conducted its own thorough investigation, which is separate and independent from the US process."

"We have been following the FTC procedure closely as it progressed and understand that the FTC had similar and very strong concerns regarding the transaction. This is confirmed by the fact that the FTC announced on 2 September 2022 that it will appeal the decision. The next step in the US process will thus be a final decision by the Federal Trade Commission itself," a commission spokesperson said.

"While generally converging on the substantive principles of assessment, the US and EU follow different procedural frameworks, under different timetables. This may cause investigations on the same transaction to have outcomes that aren’t identical."

Illumina has already announced its intention to appeal the EU’s veto, and the deadline for its application is Nov. 17.