Illumina is vowing to appeal the approximately €432 million ($479 million) fine levied against it and its cancer blood test subsidiary Grail by the European Commission (EC) for breaching European Union (EU) rules by agreeing to merge before receiving EC approval for the $7.1 billion deal.
The EC also fined Grail €1000 ($1,112) in connection with the merger, which has drawn the ire of antitrust regulators in Europe and the U.S. While the Grail fine was symbolic, the fine against Illumina was intended to be anything but, amounting to 10% of the sequencing giant’s revenue—the largest fine ever imposed by the Commission.
“In today’s decision, the Commission confirms its preliminary view that Illumina and Grail intentionally breached the standstill obligation. The Commission found that by closing the transaction Illumina was able to exercise a decisive influence over Grail and it actually exercised it,” the EC said in a statement announcing the fines.
Illumina responded with its own statement announcing that it will appeal the EC fines and continue its lawsuit challenging the EC’s jurisdiction to review the Grail acquisition, pending before the European Court of Justice. The Court is expected to issue its decision in that appeal later this year or early 2024.
Illumina announced its plan to buy Grail in September 2020. While Illumina disclosed the deal as being $8 billion, it still had a stake in Grail, reducing its value to $7.1 billion. As of August 31, 2020, Illumina owned a 14.6% stake in Grail, according to a regulatory filing that was part of a planned initial public offering (IPO), which ended four days later with Illumina’s deal announcement.
Illumina has argued that its acquisition of Grail would accelerate the commercialization of its Galleri™ cancer blood test, which at the time was planned for launch in 2021 as a laboratory-developed test (LDT). According to Illumina, Galleri can detect more than 50 cancers across all stages and correctly identified the tissue of origin in 93% of positive results, with >99% specificity.
“Success in that appeal would eliminate the basis for any fine and enable Illumina to expand the availability, affordability, and profitability of the groundbreaking Galleri test in the $44-plus billion multi-cancer screening market,” Illumina asserted. “We believe that the fine announced by the European Commission (EC) today—while expected and accrued for over the last year—is unlawful, inappropriate and disproportionate.”
No immediate financial impact
Because Illumina had accrued for the fine last year, it will have no immediate financial impact to the company. That appeared to assuage shareholders, since Illumina shares rose 4% in trading Wednesday, from $184.82 to $191.95.
Illumina finished Q1 with a net income of $3 million, down 96.5% from $86 million a year ago. When those results were announced in April, then-CEO Francis deSouza said those numbers were expected to improve in coming quarters since the company had agreed to continue the cost-cutting it announced last November, lowering its annualized run-rate expenses by more than $100 million beginning this year.
deSouza resigned last month, just over two weeks after he survived a proxy campaign to oust him that was led by Carl C. Icahn. One of Icahn’s key arguments was that llumina had drained itself of resources through its nearly three-year effort to acquire Grail despite opposition from U.S. and European regulators. Icahn also took aim at Illumina’s shrinking stock price since 2021, which he calculated reduced its market capitalization by some $50 billion; and the near-doubling last year of deSouza’s total compensation to almost $27 million.
However, while deSouza kept his board seat, shareholders voted to oust Illumina’s chairman John W. Thompson, who has ties to deSouza, and instead elect to the board Andrew J. Teno, a portfolio manager at Icahn’s investment management firm Icahn Capital since October 2020.
Charles Dadswell, Illumina’s Senior Vice President and General Counsel, has been named interim CEO while the board conducts a search for a new CEO.
Repeating earlier arguments, Illumina said in its statement today that it closed the acquisition of Grail in 2021 “because there was no impediment to closing in the US and the deal timeframe would have expired before the EC could reach a decision on the merits.”
“The deal timeframe relied on the EC’s public statements that it would not assert jurisdiction over mergers of this type until new guidelines were issued, yet the EC nonetheless asserted jurisdiction over the merger before issuing the promised guidelines,” Illumina stated.
Illumina respected the EC process, it argued, by voluntarily keeping the companies separate upon closing, as well as by abiding by EC interim measures during the regulatory and judicial processes.
Constitutional appeal
In the U.S., Illumina is appealing an Opinion and Order by the Federal Trade Commission (FTC) to divest itself of Grail. The order, issued in April, contended that an Illumina merger would lessen innovation in the U.S. market for multi-cancer early detection (MCED) tests like those marketed by the cancer blood test developer, since Illumina is the nation’s only provider of DNA sequencing that is a viable option for MCED liquid biopsy tests.
The FTC concluded that Grail falling under Illumina control “may substantially lessen competition in the relevant United States market for the research, development, and commercialization of MCED tests. The order reversed the decision last September of Chief Administrative Law Judge D. Michael Chappell, who ruled in Illumina’s favor against the FTC challenge to the Grail acquisition.
In a filing to the U.S. Fifth Circuit Court of Appeals last month, Illumina argued that FTC leadership violated the U.S. Constitution because FTC commissioners can only be removed for cause—a status that according to the company violated the Constitution’s Article II, which vests executive power in the President, contending that commissioners are executive officers who should be accountable to the president.
Illumina also took issue with the division of oversight over mergers by the FTC and antitrust division of the U.S. Department of Justice, since parties to a merger like Illumina cannot decide which agency reviews their deals to acquire other companies, and each agency has differing options for challenging them.
Illumina concluded that the FTC “violated due process by depriving Illumina and Grail of a fair proceeding before an impartial tribunal.”
