Illumina to Divest $8 Billion Grail Acquisition Amid Regulatory Pressure

Oct 14, 2023 00:02 CST Updated 00:02

Illumina

Diagnostic Product Developer

GRAIL

Early Cancer Diagnosis Technology Developer

Source: Siyu MedTech; Editor: Jacky

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On October 12, 2023, the European Commission announced that it had ordered DNA sequencing provider Illumina (NASDAQ: ILMN) to unwind its acquisition of Grail. Grail is a company focused on early cancer detection that was spun off from Illumina in 2016.

# Illumina to Ultimately Divest Its Acquisition of Grail

The committee stated that Illumina, the leader in DNA sequencing, can now choose to sell Grail to another company or spin it off as a publicly listed entity, retaining the proceeds from such a move, provided that it is completed in a timely manner and restores Grail's independence and commercial viability to the level prior to Illumina's acquisition in August 2021.

Commissioner for Competition, Didier Reynders, stated in the press release that this decision to unwind the acquisition restores competition in the development of early cancer detection tests. These tests could represent a breakthrough in the fight against cancer.By ordering Illumina to restore GRAIL's independence, the Commission has ensured a level playing field in this crucial market, ultimately benefiting European consumers.

The European Commission orders Illumina to complete the divestiture as required, and both companies need to comply with transitional measures until Illumina unwinds the deal.

The following principles should be followed during the divestiture acquisition process:

The termination of the transaction must restore Grail's independence from Illumina to pre-acquisition levels.
After the divestiture, Grail must remain as commercially viable and competitive as it was prior to the acquisition, to ensure that Grail continues to engage in an innovation race with its competitors, similar to the state before the transaction.
Divestment must be executed within a strict timeframe with sufficient certainty to restore the pre-transaction status in a timely manner;
Illumina can choose an appropriate divestiture method as long as it adheres to the principles of the divestiture measures. However, the company must submit a divestiture plan and obtain approval from the European Commission.

If the company fails to comply with the above measures, the Commission may impose periodic fines of up to 5% of the company's daily total turnover under Article 15 of the EUMR. Additionally, Article 14 of the EUMR allows the Commission to impose fines of up to 10% of the company's global annual turnover for non-compliance.

# Illumina in Trouble Since Announcing Acquisition

In September 2020, Illumina announced an $8 billion cash-and-stock deal to acquire Grail. Since then, the company has faced a whirlwind of antitrust investigations by the European Commission and the U.S. Federal Trade Commission (FTC) over this merger.

In April 2021, Illumina delayed its acquisition of Grail after the FTC raised concerns that the proposed acquisition would stifle innovation in multi-cancer early detection tests. Weeks later, the European Commission announced it would also review Illumina's acquisition proposal.

In June 2021, a U.S. judge ruled in favor of the Federal Trade Commission's request to dismiss the case against the proposed merger. The ruling allows the European Commission to investigate the merger while the deal remains blocked.

In August 2021, Illumina completed the $8 billion acquisition of Grail despite scrutiny from two regulatory agencies.However, before all reviews are completed, GRAIL will remain separate from Illumina.

In September 2022, Illumina cleared antitrust hurdles in the United States but was again blocked by the European Commission, which prohibited the company from acquiring GRAIL.

In July 2023, Illumina and Grail were fined heavily by the European Union due to the way they handled their merger. Illumina was fined $478.9 million (€432 million), and Grail was fined $1,108 (€1,000). The Commission claimed that the two companies implemented the proposed merger before obtaining approval from the Commission. Such actions violate the EU's merger control rules.

A month later, Illumina announced that the U.S. Securities and Exchange Commission (SEC) had launched an investigation into the acquisition of Grail.

# Reasons for Illumina's Persistent Acquisition of Grail

Grail, Inc. was founded in 2016 and is headquartered in Menlo Park, California, USA. Grail, Inc. is a leading company in early cancer screening in the United States. It was originally spun off from Illumina, Inc. In January 2016, Illumina, Inc. announced that it would spin off its liquid biopsy business and assets into Grail, Inc. At that time, liquid biopsy was already being used to detect drug responses in cancer patients and subsequently assist in cancer treatment.After the split, Grail clearly positioned its future research direction in disease screening and stated that it would focus on tracking DNA shed from tumor cells in the blood.

Grail's Latest Detection Product is Called Galleri™, a Multi-Cancer Early Detection Blood Test. It Uses Machine Learning Algorithms to Compare Blood Samples with Genomic Sequencing Data for Detection. Galleri Aims Not Only to Detect Cancer at the Earliest Stage but Also to Identify the Exact Organ Where Cancer Originates, Minimizing False Positive Rates to Avoid Unnecessary Repeat Testing and Treatment.On September 20, 2021, this early cancer detection product received approval from the New York State Department of Health, meaning local residents can access it through a prescription as a supplementary test for cancer screening.

In January 2023, Illumina's CEO Francis DeSouza (DeSouza resigned from his position as CEO on June 12 this year) shared insights in Davos regarding why Illumina decided to acquire GRAIL, shedding light on the background of the acquisition.

DeSouza said in the interview, "The acquisition of Grail will enable Illumina to provide affordable pan-cancer screening globally. The innovative Galleri test can help Illumina expand its market share in the global $44 billion cancer screening market."

Moreover, the data from Q2 shows that although Grail is still incurring losses, its Galleri multi-cancer product is increasingly being accepted by the market. In the past two years, Grail has completed 100,000 tests and has over 7,500 healthcare providers in the United States.

# AboutIllumina

IlluminaThe company is committed to promoting and inspiring the development of genomics to continuously improve human health. Its focus on innovation has made it a global leader in sequencing and microarray technologies, providing professional services to customers in research, clinical, and applied markets worldwide.IlluminaProducts are widely used in life sciences, oncology, reproductive health, agriculture, and other emerging fields.

Editor-in-Chief | Zhao Qing Reviewed by | Yi He Typeset by | Miya