Genetic sequencing biotech Illumina has agreed to acquire Grail, the cancer screening start-up backed by Jeff Bezos and Bill Gates, in an $8bn cash-and-stock deal that will be its largest to date.
Illumina founded Grail four years ago and owns a near 15 per cent stake in the company. It will pay $3.5bn in cash and $4.5bn in Illumina shares, subject to a collar, for the remaining part of the cancer screening company.
Grail specialises in the emerging field of liquid biopsy: taking a blood sample to test for cancer. By detecting tumour DNA in the bloodstream, the technology can identify more than 50 cancers, including where they are located in the body, with a false positive rate of less than 1 per cent.
The aim is to develop a product that will detect cancers early and in a less intrusive way than traditional biopsies, which involve taking a tissue sample. However, creating such a product takes time, as there are risks of false alarms when people without symptoms are tested.
The company’s test is still in very large trials — including one with 100,000 participants — and is not yet on the market. Last year, it received a breakthrough designation from the US Food and Drug Administration, which aims to accelerate the review of new products.
Shares in Illumina fell 3 per cent in pre-market trading in New York, after losing 17 per cent since last Wednesday, as rumours of the deal emerged.
Under the collar agreement, Grail shareholders will receive approximately $4bn in Illumina shares if their 20-day volume weighted average price from 10 days prior to the deal closing is between $295 and $399.
If the stock closes at above $399, Grail shareholders will receive 9.9m Illumina shares, whereas if it closes below $295, they will receive 13.4m. The combined company will be split between Illumina and Grail shareholders who will own 93 per cent and 7 per cent of the group, respectively, based on the collar.
Illumina will fund the cash portion of the deal from its own balance sheet, as well as Grail’s, along with up to $1bn in debt financing or an equity issuance.
As part of the deal Grail shareholders will also receive future payments equal to 2.5 per cent of the first $1bn of Grail-related revenue for 12 years. If the company makes more than $1bn, the payment will be 9 per cent of revenue.
The Silicon Valley-based Grail had been planning an initial public offering to raise up to $100m, after having raised more than $2bn in the private markets from investors including Mr Bezos and Mr Gates, according to PitchBook.
Francis deSouza, Illumina’s chief executive, said he was thrilled to welcome the company. “Together, we have an important opportunity to introduce routine and broadly available blood-based screening that enables early cancer detection when treatment can be more effective and less costly,” he said.
Hans Bishop, Grail chief executive, said the deal should enable “broader and faster adoption” of the company’s test. “Cancer is one of society’s most significant challenges, with most cancer being detected too late,” he added.
Rivals include Freenome, which is starting with an early detection blood test for colorectal cancer and whose funders include Andresseen Horowitz and Alphabet’s GV, and Thrive, which has a liquid biopsy test called CancerSEEK that was developed at Johns Hopkins University, and which raised $257m in July.
Guardant Health, a New York-listed company that sells tests to help oncologists select personalised cancer treatments, is also developing an early detection product.