Analysts question Illumina’s plans to buy cancer-detection company Grail

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Shares of Illumina Inc. were down 0.2% in premarket trading on Tuesday, the day after the stock dropped 8.6% and it confirmed plans to buy cancer-detection company Grail Inc. for $8 billion in cash and stock. Analysts have been critical of the deal; Stifel called the acquisition “massively dilutive,” SVP Leerink’s Puneet Souda said the deal will be “viewed as the ultimate move or one of the most costly endeavors in the company’s history,” and J.P. Morgan downgraded the stock to neutral from overweight. “We find it hard to get excited about the acquisition, especially considering that ILMN was already positioned to participate from Grail’s ramp,” J.P. Morgan analysts wrote in a note to investors on Monday. Illumina already owns a 14.5% stake in Grail, which is developing blood tests that can detect cancer. While the potential to use blood tests to detect cancer could radically shake up the cancer detection market, none of Grail’s products have been approved by the Food and Drug Administration, and the company is still spending largely on research and development. Grail had $260 million in operating expenses in 2019, with the majority going to R&D, according to Souda. The deal is expected to close in the second half of next year. Illumina’s stock is down 18.5% so far this year, while the S&P 500 is up 1.5%.
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