San Diego biotech giant Illumina said Sunday that it is divesting Grail, the early cancer-detection company it acquired for roughly $7 billion, after its legal battle with U.S. antitrust regulators failed.
The deal has weighed on Illumina for several years by plunging it into legal challenges with U.S. and European regulators, causing conflicts with discontented investors and leading to a shake-up of its leadership.
The announcement comes two days after the 5th U.S. Circuit Court of Appeals reaffirmed the Federal Trade Commission’s ruling that the deal would lessen competition in the field. That led Illumina, the leader in DNA sequencing, to announce Sunday that it will not pursue further appeals of the order to unravel its purchase of Grail.
Illumina said it would part ways with Grail through a third-party sale or capital markets transaction. The company said the goal is to finalize the by the end of the second quarter of 2024.
“We are committed to an expeditious divestiture of Grail in a manner that allows its technology to continue benefiting patients,” said Jacob Thaysen, CEO of Illumina, in a statement. “The management team and I continue to focus on our core business and ing our customers. I am confident in Illumina’s opportunities and our long-term success.”
The FTC challenged Illumina’s acquisition on antitrust grounds in March 2021. Now, United States antitrust regulators are hailing this outcome as a win for the agency that works to promote competition and consumer protections.
“This is a major win for the FTC as it works to protect competition in health care,” said Federal Trade Commission Bureau of Competition Director Henry Liu in a statement. “Illumina’s decision to unwind its acquisition of Grail ensures the market for cancer detection tests remains competitive and delivers a choice of high-quality tests for patients and physicians, ultimately saving lives.
The Fifth Circuit’s unanimous ruling in this case recognizes how vertical deals can threaten competition and provides a clear roap for future cases. The ruling is also a victory for patients who need affordable, high-quality quality cancer detection tests. I applaud FTC staff for their dedication to this case and effort to ensure this critical health care market remains competitive.”
The divorce with Grail is not unexpected as the company has been preparing for the possibility in recent months.
Illumina previously disclosed to investors that if it lost any of its legal challenges in Europe or the U.S., the company would divest Grail. On Dec. 11, Illumina filed a Form 10 with the Securities and Exchange Commission, which allows the company to engage with interested buyers.
Because government regulators were challenging the deal, Illumina has held Grail as a separate company and continues to do so.
Grail, which makes a diagnostic blood test that screens for 50 types of cancer, was founded in 2015 and is a spin-off firm of Illumina. The company announced in September 2020 that it would buy Grail for $7.1 billion to bring its cancer-detecting test to market.
When the deal was first announced in 2020, antitrust regulators raised concerns that Illumina’s purchase of Grail would stifle innovation and potentially raise prices for cancer-detecting tests in this space. The two companies are not direct competitors. However, Illumina supplies DNA-sequencing services vital to these tests and any similar ones that could be offered by Grail competitors.
Illumina pushed back against these claims and proceeded to close the transaction on Aug. 17, 2021.
In addition to pressure from U.S. regulators, the European Commission slapped Illumina with a record $476 million fine in July for pushing through the acquisition without approval from its regulators. Last week, Illumina argued in appeals court with European regulators, who ordered the divestment of Grail in October, that the EU does not have jurisdiction over the deal because Grail only operates in the U.S.
Since purchasing Grail, Illumina’s stock price has dropped by more than one-third this year. The handling of the Grail deal ruffled investors, including activist investor Carl Icahn, who waged a proxy battle with Illumina.
Icahn sought to oust Illumina’s longtime CEO Francis deSouza and two of its board leaders. As a result of this corporate brawl earlier this year, he managed to replace board chairman John Thompson, while the others survived the fight.
However, in June deSouza resigned.
The clashes with Icahn and Illumina don’t end there. In October, Icahn filed a civil lawsuit against deSouza as well as a number of Illumina’s board who oversaw the acquisition.
The lawsuit contends that Illumina’s board of directors “caused Illumina to break the law” by pushing through the acquisition of Grail on Aug. 17, 2021. The deal was already being scrutinized by antitrust regulators and it only intensified after the purchase closed.
The deal is also being investigated by the US Securities and Exchange Commission.
