My mom died of stage 4 cancer in February 2008. Had the technology existed then to detect her cancer earlier, she might have met my three young daughters.
Improving cancer prevention and treatment is an urgent priority for the United States. President Biden has repeatedly signaled as much through his work with the Biden Cancer Initiative and a previous administration’s Cancer Moonshot. Yet Biden’s Federal Trade Commission is stalling a merger that would save lives while also setting a precedent against scientific innovation that could save many more.
The FTC is challenging Illumina’s acquisition of Grail, one of several companies developing liquid biopsies — cancer screening tests performed on blood samples. Current methods of detecting cancer are slow, risky, and often ineffective. Liquid biopsies represent an accurate and noninvasive early detection approach that is truly revolutionary.
Most cancers are detectable only after symptoms appear, which is often too late for successful intervention. Detecting cancer at stage 1 versus stage 4 can make a huge difference: The average person diagnosed with stage 1 bladder cancer, for example, has a 96% chance of living at least another five years; for those diagnosed with stage 4 bladder cancer, the five-year survivorship drops to 6%.
Illumina’s acquisition of Grail would be a vertical merger. Rather than removing a direct competitor, as in a horizontal merger — think GM buying Ford — a vertical merger brings together two firms at different stages in the same supply chain, allowing for greater financial and operational efficiency.
Illumina has an effective monopoly on genomic sequencing, a critical input for the liquid biopsy products offered by Grail and its competitors. The FTC argues that if this vertical merger is approved, Illumina could underprice Grail’s products, giving the company an unfair advantage over its competitors.
That argument is wrong. First, low prices are a healthy form of competition that would make Grail’s liquid biopsies cheaper for consumers. Second, decades of economic analysis have shown that most vertical mergers increase competition, especially in fields that rely heavily on R&D.
Vertical mergers such as Illumina’s acquisition of Grail accelerate the pace at which innovations reach the marketplace. The reason is simple: Startups need to focus on one big problem at a time. Research startups like Grail take on tremendous risk as they develop new biotechnologies. Most fail, and even fewer would succeed if they also had to bear the risk of bringing their innovations to market.
In a healthy economy, firms specialize and develop comparative advantages. In the biotechnology sector, there is a clear division between R&D startups focused exclusively on overcoming scientific challenges and the large public companies that understand how to turn this work into marketable products. To force biotech startups to commercialize or drug manufacturers to conduct early-stage research would make each less efficient and slower to bring products to consumers.
Vertical mergers are standard across the life sciences industry because they are a natural form of specialization. A 2019 study found that of Pfizer’s 44 leading products, 77% of them emerged from R&D conducted by external specialized firms. For Johnson and Johnson, it was as high as 89%.
Illumina created Grail for this same purpose, then spun it off to attract venture investment and do specialized research. Now it wants to reincorporate Grail’s technology and bring a lifesaving treatment to market.
“Platforms” like Illumina, which offer powerful tools to accelerate the development of therapies and diagnostics, allow talented entrepreneurs to experiment quickly, take risks, and bring cures to market faster. That’s good news for the future of cancer treatment, as well as for the discovery and development of new therapies for many other conditions — assuming the federal government doesn’t break the country’s exceptional biotech sector by applying a perverse vertical merger theory.
The FTC’s prosecutors don’t understand that a division of labor between R&D startups and large pharmaceutical companies is the lifeblood of biotechnology. In the past, when the commission had concerns about similar vertical mergers, it imposed behavioral remedies, such as requiring fair and reasonable prices to all downstream competitors. Illumina has offered the same deal here, but the FTC has refused. This change in policy will chill the investments and risk taking that transform life science discoveries into lifesaving medical products.
In the spirit of full disclosure, my firm was an investor in one of Grail’s competitors and has a short-term financial interest in supporting the FTC’s decision to block the merger. But the threat to American innovation is simply too great to remain silent. Creating a precedent against vertical mergers and destroying the natural division of labor in the life science industry condemns hundreds of thousands of Americans — people like my mom or yours — to die from preventable diseases.
Joe Lonsdale is an entrepreneur and technology investor, the managing partner at 8VC, and co-founder of Palantir and several other mission-driven companies.
Amen Joe!