Two of Grail’s founding directors have warned Illumina’s battles with antitrust regulators and activist investor Carl Icahn over its ownership of the cancer screening company threaten to hamper access to potentially life-saving oncology tests.
Jeff Huber, former founding chief executive of Grail, and Meredith Halks-Miller, an Illumina scientist whose discovery led to development of its blood test that detects 50 types of cancer, said political wrangling was causing delays and funding concerns.
“One of the disappointing aspects of the European Union and Federal Trade Commission regulatory issues and now the Icahn proxy battle is that Grail is moving more slowly than it should,” Huber told the Financial Times.
“There is real cost with the delay from the regulatory scrutiny and over-reach. Grail isn’t broadly accessible now because of it, and we are missing many opportunities now to detect people’s cancers early. The very real cost is lives lost with every day of delay.”
Illumina spun off Grail in 2016 to raise funding to develop Galleri, which the company has billed as the world’s first blood test capable of detecting multiple cancers at an early stage. The test works by using genetic sequencing and artificial intelligence to scan a certain type of DNA (cell- free DNA) found in people’s blood for changes caused by cancer cells.
Grail raised $2bn from investors including billionaires Bill Gates and Jeff Bezos and was about to undertake an initial public offering in September 2020 when Illumina offered $8bn to buy it back. The subsequent takeover sparked a battle with regulators, which argued Illumina would have an incentive to cut off Grail’s rivals from using its sequencing technology and so stifle innovation in the cancer testing market.
Illumina rejects this claim.
Last year Brussels blocked the deal and is expected to fine Illumina 10 per cent of annual turnover for closing it without approval. On Monday the FTC ordered the San Diego-based company to divest Grail, reversing an earlier ruling by a US administrative judge in favour of the acquisition.
Illumina has said it will appeal against the order.
The controversy has prompted activist investor Icahn to wage a proxy battle at Illumina, which he alleges squandered $50bn by closing the deal without regulatory approval. Illumina’s market capitalisation has dropped from $75bn in August 2021 when it acquired Grail to just over $30bn last month.
Icahn wants to appoint three new directors to the board and remove Illumina chief executive Francis deSouza and chair John Thompson. On Monday he doubled down on his criticism, asking how the board could justify paying deSouza $27mn last year, an 87 per cent increase on 2021.
Illumina continues to run Grail separately while it battles an EU divestment order. If it had full control, Illumina claims it could roll out Grail’s tests much faster and to more countries than planned.
Huber, who lost his wife to cancer shortly before joining Grail in 2016, said the company was “stuck” because Illumina was restricted from moving forward and “scaling the product and reducing cost” of Galleri tests until the EU issues were resolved.
Halks-Miller, who left Illumina to join Grail as its founding laboratory director, said her big concern was that the “political wrangling” with the EU and Icahn could cause Grail to struggle for funding following any forced divestment by Illumina.
“The current economic climate with banks failing and a poor IPO situation could raise questions about how Grail sustains itself if Illumina is forced to divest. Raising money is difficult now,” she said. “I would hate to see Grail just sort of get passed around like a hot potato to people who don’t know how to manage or take care of it.”
Halks-Miller, who retired in 2020, said the Galleri test had huge potential but needed a lot of money to fund the clinical trials and development required to improve and roll out tests at prices everyone can afford.
Grail is forecast to lose $670mn in 2023 as it funds the largest ever clinical study of a multicancer detection test in the UK. It has partnered with the NHS, which has enrolled 140,000 people aged 50-77 to determine whether Galleri can detect cancers early, when they are usually easier to treat.
The NHS has said it may buy 1mn Galleri tests if the results are positive.
But the success of Galleri and several other early detection tests for cancer under development is far from guaranteed. Some health experts warn there is scant data to demonstrate their effectiveness and the NHS trial is not set up to measure improvement in mortality rates.
Paul Pharoah, professor of cancer epidemiology at Cedars-Sinai, a non-profit healthcare organisation in Los Angeles, said early detection tests had been “overhyped”, as there was still no proof they could detect most early-stage cancers or that their use could improve survival rates.
He said the tests raised other potential problems, including overdiagnosis and overtreatment for cancers that for some people may never have become life-threatening. Chasing up false positives could also cost health systems money and cause stress for patients, said Pharoah, adding much more comprehensive studies were required before roll out.
Grail rejects these criticisms.
A trial measuring Galleri’s impact on mortality would require a much larger study that would take a decade or more to complete, the company said. It said a smaller-scale study had already validated its tests and it felt a great sense of responsibility and urgency to address a “Covid-size pandemic” in cancer every year.
Last year Grail published data showing Galleri flagged 92 potential cancers from blood tests drawn from 6,662 people. Some 35 participants in the study were diagnosed with cancer. All but 10 of these diagnoses were for cancers that did not have routine cancer screening programmes in place. Fifty-seven were false positives, almost a third of which prompted an invasive procedure to rule out a cancer diagnosis.
Grail is selling Galleri to US consumers for about $950 as a “laboratory developed test” — a category that does not require approval from the US Food and Drug Administration and is not widely reimbursed by insurers. The company expects to generate between $90mn-$110mn in sales this year but must win approval before it will be adopted widely.
“We need commercial payers to be able to pay for [Galleri]. Many of them are going to wait for FDA approval to do that,” said Josh Ofman, Grail president. “We also need to get Medicare to have the authority to be able to pay for a test like this, which they do not have.”
Ofman said he was confident the tests could provide a big public health benefit by identifying cancers — pancreatic, bowel, head, neck and many others — earlier than at present. Grail’s existing work programme had not been delayed by the legal battle with Brussels or Icahn, Ofman said, adding that management remained confident in its business model.
Some analysts say it is Illumina rather than Grail that faces the biggest near-term risks given the terms of a holding agreement imposed by EU regulators on the company before they issue a final divestment order.
Under this agreement Illumina cannot immediately sell Grail, even if it decides to reverse course because of pressure from Icahn. The agreement also imposes funding obligations on Illumina for Grail.
“Illumina is being forced to fund Grail at $700mn a year but has no control over the asset and may be forced to divest,” said Vijay Kumar, analyst at Evercore ISI.
This high cash burn rate is out of step with the market environment following the biotech crash and could pose unintended consequences for Grail following a divestment, he said.
“Can Grail right size its cost structure when capital markets have tempered? We hope the Grail saga comes to a conclusion sooner rather than later.”
