Sep 10, 2021 - 9:00am

Inside the FTC’s Ploy to Quash A BioTech Merger


Senior Vice President, International Regulatory Affairs & Antitrust

In Franz Kafka’s The Trial, a man is prosecuted by a remote, inscrutable authority. With the nature of his offense unclear and the court’s jurisdiction ambiguous,  the entire process becomes bewildering and interminable.  As he navigates a labyrinth of bureaucratic traps, the proceedings themselves “gradually merge into the judgment.”  Ultimately, Kafka’s character is deemed guilty, without ever hearing the charges against him or having a chance to defend himself. 

Welcome to today’s Federal Trade Commission (FTC).  In a series of recent maneuvers, the FTC sued two biotech companies to protect hypothetical future competition. It then colluded with a foreign regulatory agency that lacks jurisdiction, and then withdrew its lawsuit to forestall a trial on the merits. At no point in these proceedings were the companies involved told what they could do to comply with the law.  These acts should concern any American who cares about due process, the rule of law, and our innovative economy. 

Let’s take a step back. In 2016, Illumina formed Grail to develop a blood test to screen for cancers in asymptomatic people.  After spinning it off for a few years to enable Grail to raise capital and test its product, Illumina sought to reacquire the company.  The deal is a textbook vertical merger: the companies operate at different points on the supply chain—Illumina produces the genetic sequencing platforms on which Grail’s multi-cancer early detection test is run.  Illumina and Grail both believe that the reunion will allow them to expedite the production, distribution, and regulatory approvals for Grail’s blood test, saving time, expanding access, and most importantly, saving tens of thousands of lives.   

Enter the FTC.  In March, the agency filed a complaint to block the merger on the theory that Illumina might one day charge Grail’s hypothetical future competitors more for the sequencing products used to process their multi-cancer early detection tests, or flat out refuse to provide those products for competing tests.  As the Wall Street Journal has explained, this speculative theory could likely fail in court.  This is a vertical merger, which even the FTC concedes usually helps consumers, there is currently no market for multi-cancer early detection tests, and even if one develops, Illumina committed to providing its products to future competitors at current prices for the next twelve years and has even committed to decreasing prices by 2025. Despite these assurances, the FTC has refused to tell Illumina what else it could do to assuage any lingering competitive concerns. 

Rather than test its legal hand, the FTC appears to have engaged in a bit of transatlantic forum shopping that should send chills down the spine of every American executive.  A foreign country should only review a merger if the deal materially impacts consumers in its domestic market.  This sensible practice respects norms of international comity, uses resources efficiently, and increases predictability and transparency in the law.  By these principled measures, the European Union should have no interest in this merger, as Grail has no business activities in Europe.   

Yet in March, if not earlier, the FTC began to talk to the European Commission (EC) about the merger.  Soon after, the EC announced the reinterpretation of one of its provisions, Article 22, thereby enabling it to review mergers at the request of an individual country solely on the speculative grounds that a merger might pose a significant threat to competition – irrespective of whether the company does business in that country or any member country.  Armed with the new policy, the EC announced that it would review the proposed merger, notwithstanding Grail’s lack of activity in Europe. 

The FTC then went full-on Kafka.  After Europe announced its review, the FTC dismissed its federal court lawsuit against Illumina and Grail, because Europe’s review – which the FTC had encouraged – made action to block the deal in U.S. courts unnecessary.  With this ingenious but deceptive bit of bootstrapping, the FTC effectively tried to deny Illumina and Grail their day in court.  While the EU has the transaction tied up in knots, the FTC moved ahead with its lengthy administrative proceeding that challenges the deal, with an initial decision not expected until 2022.  Mergers, which are presumed lawful, are also time-sensitive, and the Illumina-Grail deal must be complete before the end of the year, yet the FTC and EU actions threaten to run out the clock, without the FTC ever having to justify its actions before a court.   

These maneuvers left Illumina-Grail with no choice.  Left with few options, Illumina and Grail did the only sensible thing that they could do– they closed the transaction.  In doing so, they refused to let procedural games determine the fate of this important merger. Unlike the FTC, Illumina has taken the responsible path by pledging to supply a future market if it emerges, and to do so without price increases. With the transaction now closed, Illumina has also agreed to operate the two companies separately pending review in Europe.  

As reflected in the Illumina-Grail case, the FTC has aggrandized its powers in recent months, often at the expense of transparency and due process.  The agency has expanded its enforcement discretion by withdrawing guardrails on what constitutes “unfair methods of competition,” voted to allow the chair to authorize subpoenas without input from other commissioners, and sought expansive rulemaking authority, all while instructing staff to disengage from public discourse.  Even worse, the Commission has now created a precedent whereby a foreign authority may feel empowered to exercise jurisdiction over purely American transactions. 

We should all be concerned about the FTC’s recent excesses, seeming disregard for due process, and the open invitation for foreign officials to interfere with domestic matters.  If the FTC continues down this path and refuses to give companies such as Illumina and Grail their day in court, Congress and the judiciary must step in to preserve the rule of law.  A fair and transparent merger process that allows the government to scrutinize a merger is squarely in bounds; opaque and overreaching maneuvers like these are not. If they are, America’s innovative edge is in serious peril. 

About the Author

About the Author

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Senior Vice President, International Regulatory Affairs & Antitrust

Sean Heather is Senior Vice President for International Regulatory Affairs & Antitrust.