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Illumina to Acquire Cancer Diagnostics Start-up Grail

By Jim Crumly – Sep 21, 2020 at 2:13PM

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Grail's blood test for early detection of 50 types of cancer is poised for launch next year.

Gene-sequencing giant Illumina (ILMN -0.95%) confirmed last week's rumor that it's buying Grail, a start-up working on early detection of cancer using DNA analysis of blood samples, in a deal worth $8 billion. Grail was founded by Illumina in 2016, spun off as an independent company, and has raised $1.9 billion in four rounds of private equity.

Grail had announced its intention to launch an initial public offering in a filing with the Securities and Exchange Commission on September 9 but apparently felt Illumina's offer was better for its investors, which include Amazon's Jeff Bezos and Microsoft's co-founder Bill Gates. Illumina is paying $3.5 billion in cash and $4.5 billion in Illumina stock for the 85.5% of Grail shares it doesn't already own. Based on the current Illumina share price, Grail shareholders will own 8.3% of the combined company when the deal closes, which isn't expected to happen until the second half of 2021.

DNA and blood cells in a test tube.

Image source: Getty Images.

Considerably sweetening the deal for Grail's investors are contingent value rights to a cut of future revenue from Grail products for the next 12 years. The holders will receive 2.5% of the first $1 billion of product revenue each year and a generous 9% on annual revenue over $1 billion.

Illumina's investors appear to be concerned about the deal's price tag, with shares down 7% today, but Grail's products could be revolutionary. The company has a blood test called Galleri to detect more than 50 different cancers in asymptomatic patients, only five of which can be detected using current screening techniques. Galleri is in a clinical study with 6,200 patients, and Grail expects a commercial launch in 2021. Illumina believes the deal expands the company's total addressable market by at least $60 billion.

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Jim Crumly owns shares of Amazon and Illumina. The Motley Fool owns shares of and recommends Amazon and Illumina and recommends the following options: short January 2022 $1940 calls on Amazon and long January 2022 $1920 calls on Amazon. The Motley Fool has a disclosure policy.

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