U.S. antitrust regulators have ordered San Diego’s Illumina to unwind its $7 billion acquisition of early detection cancer screening outfit Grail — reversing a previous ruling by an istrative law judge that found the deal did not stifle competition.
Illumina said on Monday that it would immediately appeal the Federal Trade Commissioner’s order in federal court, which pauses the divestiture process until the court issues a finding.
But the move likely ratchets up the pressure on Illumina stemming from its move to close the acquisition of Grail before the company had cleared regulatory hurdles in the U.S. and Europe.
Billionaire investor Carl Icahn — claiming the August 2021 acquisition has erased up to $50 billion in market value from Illumina — launched a proxy fight last month seeking three seats on the company’s board of directors. He aims to replace management.
Shareholders are expected to vote on Icahn’s alternative board candidates — which Illumina argues are unqualified — at the company’s annual meeting. That typically takes place in late May.
Illumina also expects to be fined and get a divestiture order in a matter of weeks from European antitrust regulators for closing the Grail acquisition prior to approval. The European Commission has already ordered Illumina to hold Grail as a separate entity with independent management pending court proceedings.
The company is appealing the jurisdiction of European officials to block a merger between two American companies when Grail does no business in countries under the European Commission’s umbrella.
Illumina, which makes DNA sequencing equipment and consumables, said it is seeking an expedited court review in the U.S. of the FTC’s divestiture order. It hopes for a ruling by a U.S. Court of Appeals late this year or early next, which roughly coincides with the time frame for a decision by the European Court of Justice over jurisdiction.
“Following the FTC chief istrative law judge’s decision in favor of Illumina in September 2022, Illumina believes that it has a strong case on appeal,” the company said in a statement.
The commissioner’s order calls for Illumina to sell off Grail within six months. The company argues that would force a “fire sale” and hamstring its ability to recoup what it paid for Grail. The commissioners can extend the divestiture deadline if necessary.
Founded inside Illumina, Grail was spun out in 2017 to attract outside investors to back its research, raising about $1.9 billion. Illumina retained 12 percent ownership.
Illumina brought Grail back into the fold in August 2021, arguing that the deal would save lives by accelerating adoption and insurance reimbursement for early detection cancer tests.
Today, Grail has developed a diagnostic test that can uncover 50 different cancers from a single blood draw. For 45 of those cancers, there are no other early screening tests available, according to the company. Some 60,000 of Grail’s lab-based tests have been ordered to date.
Antitrust regulators raised red flags over the deal because Grail’s fledgling rivals also rely on Illumina’s next-generation sequencing equipment. Because Illumina is the only viable supplier for these types of tests, Grail’s rivals are vulnerable to Illumina’s “enormous financial incentive” to give Grail a market advantage — such as inhibiting access to supplies, services or new technologies, according to the FTC.
“Illumina stands to earn substantially more profit on the sale of Grail tests than it does by ing rival test developers,” said the FTC in court filings. “And Illumina’s ample mechanisms for effecting foreclosure give it multiple ways to act on that incentive.”
The commission voted 4-0 to order the divestiture of Grail, with the sole Republican member, Christine Wilson, writing a separate but concurring opinion before stepping down last week.
Illumina has offered Grail competitors 12-year price and supply guarantees to ward off fears that they’ll be disadvantaged. Some Illumina customers have already signed up. The program helped convince the istrative law judge that the deal wouldn’t harm competition.
But the commissioners deemed contractual guarantees an ineffective remedy that “simply cannot substitute for the incentives of a competitive marketplace.”
The commissioners also rejected Illumina’s claims that the merger will save lives. They said the argument was “vague, self-serving and uned.”
Illumina’s shares ended trading on Monday down 1 percent at $230.02 on the Nasdaq exchange.
