Illumina’s role as a key supplier to cancer test firms makes its $7.1 billion acquisition of liquid biopsy developer Grail anticompetitive, and the company must therefore divest that business, the Federal Trade Commission said.

The agency’s directive is the latest twist in a protracted legal and regulatory dispute waged since the acquisition was announced in 2020. The FTC order, which was issued on Friday and posted to the agency’s website on Monday, reverses last September’s ruling by an administrative law judge that dismissed antitrust charges brought by an FTC lawsuit to block the deal.

Illumina issued a statement saying it will appeal the FTC ruling to the U.S. Court of Appeals. The San Diego-based company added that it expects to resolve the matter late this year or early next year, which could coincide with an expected decision of a separate appeal in Europe, where the acquisition has also sparked antitrust concerns. Illumina closed the Grail acquisition in 2021 even though regulatory review was still underway in both the U.S. and Europe.

Grail, which stems from research that began at Illumina and was then spun out as a separate company, has commercialized a test that detects genetic indicators of cancer from a small blood sample. Called Galleri, this liquid biopsy is intended to find cancers before symptoms arise. Earlier detection is intended to enable cancer treatment to start sooner, when a cancer treatment has a better chance of success.

Galleri is a multi-cancer early detection (MCED) test designed to screen for more than 50 types of cancer. While rival companies have developed and commercialized their own liquid biopsy cancer tests, Galleri is the only one currently on the market that tests for multiple cancers from a single sample. The Grail test, along with MCED tests in development at other companies in this emerging sector, rely on equipment and supplies from Illumina, the dominant maker of next-generation sequencing technologies used to identify genetic signs of cancer in blood samples.

When the FTC initially filed suit to block the Grail acquisition, the agency said owning Grail would essentially place Illumina in the position of competing with its customers. The agency added that there would be nothing to prevent Illumina from favoring Grail in the provisioning of equipment, supplies, and sequencing services.

In its 98-page opinion, the FTC said that as a supplier to liquid biopsy companies, Illumina has insights into Grail’s rivals. A review of a customer’s purchasing patterns can reveal the cancers they are testing for and their progress in clinical trials or potential commercialization, the FTC said. With knowledge about competitors, Illumina could then slow their progress by raising their costs, or by withholding or diminishing supplies and services needed for regulatory approvals.

Illumina addressed the anti-competitive arguments by proposing a 12-year supply agreement that places its customers on par with Grail. Companies who sign the agreement would have the same access as Grail in terms of the ability to purchase sequencing equipment and consumable items used in testing. They would also have the same access to services as Grail, or the same services they had prior to the Grail acquisition.

The FTC was unpersuaded by Illumina’s proposed remedy, called the “Open Offer.” Such behavioral remedies provide only temporary protection, allowing the anti-competitive threat in the merger to persist, the FTC said in the opinion. Furthermore, imposing a remedy that addresses the company’s behavior comes with monitoring requirements that usually cost more than a simple divestiture.

“Contractual measures that attempt to force companies to assist their rivals and act against their self-interest cannot substitute for the incentives of a competitive marketplace,” the FTC said. “The reactions of Illumina’s MCED test developer customers validate this principle: several have testified that a contractual commitment like the Open Offer does not fully resolve their concerns.”

Illumina is fighting for Grail on multiple fronts. In addition to engaging with U.S. and European antitrust regulators, the company is also resisting an initiative from activist investor Carl Icahn, who has opposed the Grail acquisition as expensive and destructive to the value of Illumina stock. In a March letter to Illumina investors, Icahn said he plans to nominate three new board members to “bring a badly needed sense of sanity to Illumina’s boardroom.”

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