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The firm presented initial study results from the test, which identifies six cancers, showing overall sensitivity at 86 percent and specificity of 95 percent.
The investment firm said that Grail's revenue trajectory is uncertain, and given the firm's operating loss, it will significantly dilute Illumina's earnings.
Along with the downgrade, the investment bank also lowered its December 2021 price target for Illumina from $390 to $280.
Illumina thinks the next-generation sequencing cancer testing market will grow to $75 billion over the next 15 years, driven by screening.
The deal, which was approved by the boards of directors of both companies, is expected to close in the second half of 2021, pending customary conditions.
Shares of Illumina fell in afternoon trading on the Nasdaq following a brief rise after the market open.
In its IPO prospectus, the company shared plans to broaden the use of its methylation technology from cancer screening to diagnostics and residual disease monitoring.
The company is developing a blood-based test to detect more than 50 cancer types across all stages and identify a tumor's tissue of origin.
The company said the funds will support the continued development and commercialization of its genome-wide methylation assay for multi-cancer early detection.
At the AACR annual meeting, researchers shared detection rate data for multi-cancer screening tests from Grail and Thrive Earlier Detection.