The European Commission recently mandated that the DNA sequencing titan Illumina would have to divest Grail, a company that specializes in liquid biopsy. The wording of this injunction specifies that the resultant separation must bring Grail back to the same level of robustness and competitiveness it enjoyed prior to the acquisition.
The responsibility for selecting the method for the divestiture lies with Illumina. This can either be through selling to another organization or spinning off Grail as an independent entity. Prior to approval, the manner of the divestiture must be submitted to the commission. All the while, the companies must operate independently, with the commission instructing Illumina to finance Grail’s cash requisites which are needed to back its cancer detection test. No schedule has been set forth for the divestiture.
In the words of Commissioner Didier Reynders,”Today’s decision restores competition in the development of early cancer detection tests…By ordering Illumina to restore Grail’s independence, we ensure a level playing field in this crucial market to the ultimate benefit of European consumers.”
Grail originated as a research project within Illumina, based in San Diego. In 2016, Grail spun out from its parent company, managing to raise funding to carry on the development of its liquid biopsy technology. This technology is unique in that it can detect multiple cancers from a single blood sample. In 2020, Illumina announced an $8 billion deal with an aim to acquire all remaining shares it did not previously own. The following year saw Grail launch Galleri, a multi-cancer early detection test.
Regulatory review and commercialization plans oftentimes fail to progress simultaneously. Despite both U.S. and European antitrust authorizations being pending in 2021, Illumina went ahead to seal the Grail acquisition seemingly to avert a $300 million termination fee.
Illumina is currently appealing and argues that the European body lacks jurisdiction over a transaction between two U.S. based corporations. Illumina’s appeal also extends to the U.S., where the Federal Trade Commission has asserted that the business combination is anti-competitive. Illumina is committed to keeping operations with Grail separate while these legal processes are ongoing, in line with a prior European Commission order.
According to an Illumina stewardship presentation for investors, Grail has generated $109 million in revenue since the close of the acquisition to the end of the second quarter of this year. If Illumina loses one or both of its appeals, the company will divest Grail. However, even if Illumina wins both appeals, it might still divest all or part of Grail.
If Illumina fails to comply sufficiently with the restorative measures detailed in the latest European Commission order, it may be liable for an additional penalty. Per the European Union merger law, the Commission is entitled to impose a daily fine equivalent to 5% of the average daily revenue and a penalty equal to 10% of the annual worldwide revenue if requirements are completely unfulfilled – the same penalty imposed on Illumina’s premature acquisition closure of Grail.
The long-standing saga of the Grail acquisition seems to be nearing resolution with the possibility of Grail divestiture, according to Leerink Partners analyst Puneet Souda. Grail is projected to post a net operating loss of $670 million in 2023 as per Illumina.
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