Illumina Spin-Off Now Complete, Grail Sets Out on Its Own on the Public Markets - MedCity News (2024)

Cancer test maker Grail debuted on the Nasdaq Tuesday, nearly four years after its initial plans to go public were cut short by Illumina’s acquisition of the company. A lot has happened since then, but Grail’s goals remain similar: Expand access to its multi-cancer detection test by securing regulatory approvals and reimbursem*nt. But instead of executing that strategy as a division of Illumina, Grail will continue this mission on its own.

Grail’s spin-off from Illumina closes a long saga of regulatory battles waged on both sides of the Atlantic as the U.S. Federal Trade Commission and the European Commission opposed the tie-up as anti-competitive. Even though Illumina closed the acquisition before antitrust regulators completed their review, the two companies never became one. Illumina abided by directives that the companies maintain separate operations during the review process.

Grail traces its origins to Illumina, which had researched how to detect signs of cancer in blood. In 2016, that research was spun out as a startup. Grail went on to raise venture capital funding to support the development of what became Galleri, a test that can detect signs of more than 50 cancers from a small sample of patient blood. The goal is to detect cancer early, when intervention offers a better chance of helping the patient. These liquid biopsies are tested with reagents and equipment from Illumina, a supplier to other companies developing multi-cancer early detection blood tests. The acquisition of Grail, which competes with companies that are Illumina customers, raised concerns from antitrust regulators.

The Grail acquisition drew record fines and sparked investor backlash. Late last year, Illumina ended its appeals of antitrust regulatory decisions in the U.S. and Europe and said it would divest Grail. Regulators left the manner of the divestiture to Illumina, but the European Commission ordered the sequencing giant to restore Grail to what it was prior to the acquisition and to provide the company with about two-and-a-half years of funding, estimated to be $1 billion.

No bidders publicly emerged for Grail. Illumina opted to spin out Grail as an independent, publicly traded company. The separation occurred as a distribution of 85.5% of Grail’s shares to holders of Illumina common stock. Those shareholders, who retain their Illumina stock, received one share of Grail common stock for every six shares of Illumina stock that they owned as of June 13. The spin-off does not sever all ties between the two companies. Illumina retains a 14.5% stake in Grail, the same percentage it held prior to the acquisition. In a regulatory filing, Grail said Illumina made a one-time cash payment of $932.3 million. The amount of this “disposal funding payment” is less any cash held by Grail, according to the terms of the separation and distribution agreement. Grail shares now trade on the Nasdaq under the stock symbol “GRAL.”

Galleri launched in 2021 as a laboratory developed test, a pathway that does not require FDA clearance or approval. As of the end of the first quarter of this year, Grail said it had sold more than 180,000 cancer tests and established more than 100 commercial partnerships. Grail reported $93.1 million in revenue in 2023, a 67.7% increase over sales in the prior year. Grail is not yet profitable, posting a $1.4 billion net loss last year.

Though Galleri is already available to patients, Grail sees validation from FDA approval as key to the commercialization strategy for the test. In a regulatory filing, Grail said it plans to pursue FDA approval, which would support broad access to Galleri in the U.S. A randomized, controlled clinical trial testing the multi-cancer early detection (MCED) test is currently underway with enrollment topping 140,000 participants. Data from this study as well as prior clinical trials are intended to support an FDA premarket approval application submission planned for the first half of 2026.

“We believe that FDA approval could unlock broad coverage by large commercial payers in the United States,” Grail said in the filing. “We have established private reimbursem*nt for Galleri from a number of third-party payers in the United States, but do not currently have broader coverage and reimbursem*nt by government healthcare programs, such as Medicare. We are working with stakeholders to advance and shape the public reimbursem*nt landscape to cover MCED screening for FDA-approved MCED tests.”

One of the challenges for companies trying to establish a market presence for new technologies is that the regulation and reimbursem*nt framework is not yet set up to handle them. The FDA has never approved an MCED, Grail notes in the filing. In a manner of speaking, the requirements for FDA approval of liquid biopsy MCEDs remain fluid. But Grail said that as part of its ongoing discussions with the FDA, the agency has provided preliminary, nonbinding feedback about how it potentially plans to assess the safety and effectiveness of Galleri.

Reimbursem*nt poses another hurdle. Medicare does not currently cover screening tests, which are considered preventative services. Coverage of MCEDs may require Congress to amend the Medicare statute. In early June, after Grail’s board of directors approved the spin-off, Leerink Partners analyst Puneet Souda wrote in a research note that his firm believes the outlook for multi-cancer early detection tests is limited without adequate support from Medicare to pay for these tests.

“It’s hard to say if Grail will find investors willing to fund its R&D and commercial operations despite the 30-50% U.S. Galleri tests growth,” Souda said. “It’s also important to note that Galleri is not FDA-approved, and the growth outlook for any screening test that is not FDA approved for average-risk individuals is limited and risky.”

Photo: harmpeti, Getty Images