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Grail Seeks to Raise $1B in Series B; Illumina's Stake to Fall Below 20 Percent

NEW YORK (GenomeWeb) – Illumina's liquid biopsy startup Grail is aiming to raise $1 billion in its Series B financing round, Illumina said after the close of the market on Thursday.

The $1 billion would be raised from undisclosed private and strategic investors, from which Grail has received interest, Illumina said. Grail said that it has tapped Goldman Sachs to serve as a placement agent for additional financing in plans to raise in its Series B round, which it will close before the end of the first quarter.

Grail plans to use the proceeds to develop and validate its blood-based test for cancer screening, including large-scale clinical trials like the previously announced Circulating Cell-free Genome Atlas study and other trials that are anticipated to sequence hundreds of thousands of patients. It will also use proceeds to repurchase a portion of Illumina's stake.

The financing round "will provide Grail the resources to develop its first products and embark on the large-scale trials required to demonstrate the stringent performance requirements of a cancer screening test," Jay Flatley, Grail's chairman and Illumina's executive chairman, said in a statement.

Illumina also noted today that it will accelerate Grail's path to becoming an independent company. Illumina will no longer have representation on Grail's board of directors and will reduce its ownership to slightly less than 20 percent. Illumina also plans to update its supply and commercialization with Grail to reflect a market-based agreement.

Grail will become one of Illumina's "largest customers of sequencing instruments and consumables over time, providing royalties on future Grail tests and through appreciation of our ownership interest," Illumina CEO Francis de Souza said in a statement.

In a research note, Tim Evans, a senior analyst at Wells Fargo, wrote that the change in Grail and Illumina's business relationship would likely have a positive impact on Illumina's profitability. Previously, Illumina had anticipated that Grail would be dilutive, and Wells Fargo estimated it would have a $.15 per share dilutive impact. But now, "we believe Grail will swing to an EPS benefit," Evans wrote. Depending on how much Grail spends per year on sequencing instruments and consumables, it could have a positive impact of more than $.20 annually.

Not all analysts had such a positive reaction to the news, however. Paul Knight with Janney wrote that while the change in the business releationship between Illumina and Grail will improve visibility of Illumina's revenue estimates, "transparency is just as quickly impaired."

Knight added that due to the hurdles of developing diagnostics, even if Grail launches a commercial test within Illumina's three-year timeline goal, "we don't see significant Grail revenue until 2020-2025 as FDA approval and private reimbursement are part of the treacherous post-commercial launch process." Moreover, when Illumina launched Grail, the company said that only it could sequence at the price points necessary to enable the required clinical trials, but now "Grail will have to pay market prices," Knight added.