Illumina to Acquire GRAIL for $8 Billion to Accelerate Multi-Cancer Early Detection

On September 21, 2020, Illumina and GRAIL, a cancer early detection company, announced that they had entered into a definitive agreement under which Illumina would acquire GRAIL for total consideration of $8 billion in cash and stock. In addition, GRAIL shareholders will be eligible to receive additional contingent consideration, calculated as tiered single-digit percentages based on certain revenue milestones related to GRAIL. The agreement has been approved by the boards of directors of both Illumina and GRAIL.

Francis deSouza, President and Chief Executive Officer of Illumina, stated, “Over the past four years, GRAIL’s exceptional team has achieved remarkable success in developing the technology and clinical data required for the Galleri™ multi-cancer early detection test. Galleri is currently one of the most promising new products in the fight against cancer. We are delighted to welcome GRAIL back into the Illumina family, leveraging genomics and our next-generation sequencing (NGS) platform to help improve cancer care. Our collaboration will enable the launch of routine and widely accessible blood-based screening products, facilitating early cancer detection when treatment is more effective and less costly. Multi-cancer early detection benefits patients, physicians, and payers. As we accelerate progress in clinical care and multi-cancer early screening, we will continue to create significant value for our shareholders.”

Hans Bishop, CEO of GRAIL, stated, “Cancer is one of the major challenges facing society today, with most cases detected too late. We believe that multi-cancer early detection technology can address a significant unmet need worldwide and alleviate the burden of cancer. By joining Illumina, GRAIL’s innovative multi-cancer early detection blood tests will achieve broader and more rapid adoption, enhancing patient access and expanding global reach. Moving forward, we will work hand in hand with Illumina to drive a revolution in cancer detection, creating value for patients and their families, communities, healthcare providers and payers, employees, and shareholders.”

Illumina founded GRAIL in 2016 and later spun it off as an independent company. Leveraging Illumina’s next-generation sequencing (NGS) technology, GRAIL developed state-of-the-art data science and machine learning solutions and created a map of cancer signals in blood, enabling early detection of multiple cancers. GRAIL raised approximately $2 billion to support its innovative technology platform and the development of Galleri. The early version of Galleri can detect more than 50 types of cancer, over 45 of which are not recommended for screening in the United States. Galleri was poised to launch the commercial version of its laboratory-developed multi-cancer early detection blood test in 2021. GRAIL plans to continue enhancing Galleri’s blood testing capabilities in the future to meet the needs of cancer diagnosis, detection, and post-treatment monitoring for cancer patients.

Expand the potential market addressable by Illumina through direct participation and provide diverse future growth opportunities.GRAIL expands Illumina’s product portfolio to encompass cancer screening, diagnosis, and monitoring, offering a best-in-class suite of proprietary tests across all key applications in oncology detection. Currently, the adoption of oncology testing and payer coverage are accelerating, with the NGS oncology market projected to grow at a 27% compound annual growth rate (CAGR) to reach $75 billion by 2035.

Accelerate the widespread adoption of NGS-based multi-cancer early screening to benefit more patients.Illumina plans to leverage its globally deployed manufacturing and clinical advantages to accelerate the commercialization of GRAIL, unlock total market potential, and drive substantial growth in its clinical value.

Strengthen Illumina’s leading position in the field of clinical genomics.NGS is poised to revolutionize cancer treatment, and this acquisition will enable Illumina to more comprehensively engage in high-value clinical solutions based on its NGS sequencing technology. Through GRAIL, Illumina will continue to uphold its role as a leading innovator and partner in sequencing technology, while also becoming a provider of proprietary testing services.

Under the terms of the agreement, at the closing of the transaction, GRAIL shareholders (including Illumina) will receive a total of $8 billion, comprising $3.5 billion in cash and $4.5 billion in Illumina common stock, subject to a collar option. Illumina currently holds 14.5% of GRAIL’s outstanding shares, or approximately 12% on a fully diluted basis.

If Illumina’s 20-day volume-weighted average share price, ending 10 trading days prior to the closing of the transaction, falls between $295 and $399, the collar option will ensure that GRAIL shareholders other than Illumina receive Illumina common stock valued at $4 billion. If Illumina’s 20-day volume-weighted average share price, ending 10 trading days prior to the closing of the transaction, exceeds $399, GRAIL shareholders other than Illumina will receive Illumina common stock valued at approximately $9.9 million; if it is below $295, they will receive Illumina common stock valued at approximately $13.4 million. Upon completion of the transaction, based on the midpoint of the collar option, Illumina’s existing shareholders will own approximately 93% of the combined company, while GRAIL shareholders will own approximately 7%.

Other GRAIL shareholders, excluding Illumina, will receive approximately $3.1 billion in cash, which is expected to be funded by cash on hand from Illumina and GRAIL, as well as up to $1 billion raised through borrowing or equity issuance. Goldman Sachs has committed to providing Illumina with a $1 billion bridge loan prior to the equity issuance.

In this transaction, GRAIL shareholders will also receive Contingent Value Rights (CVRs). Over a 12-year period, CVR holders will be entitled to future payments calculated as a percentage of specific annual revenues related to GRAIL—approximately 2.5% on the first $1 billion in annual revenue and 9% on any amount exceeding $1 billion. Illumina will provide GRAIL shareholders with the option to receive additional cash and/or equity in lieu of the CVRs, with the exact amounts to be determined prior to the closing of the transaction.

The transaction is expected to increase Illumina’s revenue starting in 2021 and significantly accelerate revenue growth in the future.

The transaction remains subject to customary closing conditions, including regulatory approvals. Illumina expects the transaction to close in the second half of 2021. Upon completion, GRAIL will become an independent division of Illumina, with a dedicated leadership team to ensure GRAIL’s continued success. Goldman Sachs served as Illumina’s sole financial advisor, and Cravath, Swaine & Moore LLP served as its legal counsel. Morgan Stanley served as GRAIL’s financial advisor, and Latham & Watkins served as its legal counsel.

GRAIL is a healthcare company with a mission to detect and cure cancer at its earliest stages. GRAIL is dedicated to pioneering new technologies for early cancer detection to save lives and improve health outcomes. The company is leveraging next-generation sequencing, large-scale clinical studies, and world-class expertise in computer science and data science to tackle one of the greatest challenges in medicine. Headquartered in Menlo Park, California, GRAIL maintains offices in Washington, D.C., North Carolina, and the United Kingdom. GRAIL has received strong support from leading global investors as well as major pharmaceutical, technology, and healthcare companies.

Illumina is dedicated to advancing and inspiring the development of genomics to continuously improve human health. Its focus on innovation has established Illumina as a global leader in gene sequencing and array technologies, providing professional services to customers in research, clinical, and applied markets worldwide. Its products are widely used in life sciences, oncology, reproductive health, agriculture, and other emerging fields.