Genetic-sequence product specialist Illumina (NASDAQ:ILMN) lit up business headlines on Thursday evening after the company secured a legal victory in an antitrust suit. Although ILMN stock bounced higher this morning, shares are now slipping about 2% in the Friday afternoon session.
Last year, Illumina completed its planned $7.1 billion acquisition of Grail, according to the Wall Street Journal. However, the issue at the time was that the Federal Trade Commission (FTC) had a pending legal challenge against Illumina. In March, the FTC sued the company to block the transaction, arguing that the “deal would diminish innovation in the U.S. market for multi-cancer early detection tests.”
Yesterday, an administrative law judge ruled in favor of Illumina, delivering a blow to the FTC. Charles Dadswell, the company’s general counsel, had the following to say:
“As we’ve stated from the outset, this transaction is procompetitive, will advance innovation, lower healthcare costs and save lives.”
ILMN stock initially jumped on the news earlier this morning, although choppy dynamics have since impacted trading. As of this writing, ILMN is dipping by about 2%. It’s possible that investors have become pensive because this is not an outright victory for the company. The FTC can still appeal.
“We are reviewing the opinion and evaluating our options,” said FTC Bureau of Competition Director Holly Vedova.
ILMN Stock and the Expansion of Power
Why was the FTC against the acquisition? For one part of the equation, the FTC argued that Grail and other developers of early-stage cancer tests depend heavily on the Illumina’s DNA-sequencing technology. The agency stated in its complaint:
“If the acquisition is consummated, Illumina will gain the incentive to foreclose or disadvantage firms that pose a significant competitive threat to Grail.”
However, Illumina countered this argument, noting that it made an “open offer to provide continued access to its DNA sequencing to any Grail competitors.”
Still, this issue goes beyond ILMN stock and the underlying acquisition. According to the WSJ, the FTC is attempting to “push into newer theories of harm that can result from unchecked merger activity.” In other words, the regulatory agency is moving beyond “antitrust’s traditional focus on price levels and output.”
Naturally, a judge siding with Illumina represents a major challenge to the agency’s ambition. Under FTC Chair Lina Khan, the commission has aggressively investigated proposed mergers that could threaten competition.
Nevertheless, an argument can be made that the FTC knew ahead of time the risks of a legal defeat. “This case was always something of a stretch,” said law professor Stephen Calkins, per the WSJ. “It was a vertical case, which is a challenging area of law, and the law judge conspicuously noted during the oral arguments that there were very high stakes in terms of healthcare innovation.”
On the date of publication, Josh Enomoto did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
