Five years ago, Illumina (ILMN -3.69%) created Grail, a liquid biopsy biotech that hopes to detect as many as 50 types of cancers with a single blood draw from patients. In 2017, Illumina spun out Grail as a separate entity, while keeping a minority stake. Grail was all set for its initial public offering when Illumina made an $8 billion offer to reacquire the company.
Why is Illumina trying to buy its former subsidiary? And why are regulators trying to quash the deal? In a video recorded live on July 30, Olivia Zitkus, an editor and analyst at Fool.com, and Motley Fool writer Taylor Carmichael discuss Illumina and Grail.
Taylor Carmichael: They are trying to acquire Grail, and the interesting thing here is that they owned Grail. They started Grail.
Olivia Zitkus: Right, they spun it off. Now, they're trying to acquire it back.
Carmichael: Buy it back, yes. That's like saying, "Oops, we messed up. We'd like it back." They spun it out. Now, they are trying to spend a lot of money to buy it back. Again, regulators are raising eyebrows at this, and they don't want them to acquire this company. These are European regulators, and I think the FTC too are looking into this, so that deal may or may not go through. That would be two major acquisitions, and they're getting treated like a monopoly. Normally, a monopoly is pretty good for investors, because you have a lot of profit margins and there's no competition. But in this case, sometimes you plateau and you have to find new markets. Microsoft hit a ceiling with operating systems. They got into internet and providing cloud data and that was huge for Microsoft, that transition. It may be that Illumina is going to have to make a transition or expand their business in some other way, horizontally, because vertically, they hit a ceiling. Grail is one of these companies that is trying to do a liquid biopsy, I think for cancer. I'm going to call it a Holy Grail. The idea there is you take a little bit of blood, and then you can tell if somebody has cancer or not.
Zitkus: Yeah, a whole assay--
Carmichael: I've not done a lot of research into Grail. It's private. They were about to have their IPO and Illumina bought them, or just tried to buy them.
Zitkus: It's now attempting to. [laughs]
Carmichael: They've agreed to buy them. In a way, that's interesting, because it's different than what they do. What they do is they sell these big machines to researchers, and now they are trying to get into providing cancer diagnosis. It's the difference between a B2B company and a B2C company, business-to-business or business-to-consumer.