Activist investor Carl Icahn calls for Illumina CEO to be voted off company board over Grail deal

Lamenting the company’s perhaps quixotic quest to acquire the cancer blood test developer Grail against the wills of international regulators, activist investor Carl Icahn has been leading a proxy fight against Illumina for the better part of a month. 

Icahn previously put forward three names that he wants to see appointed to the DNA giant’s nine-seat board of directors. Now he says that—if anyone needs to go to make room—it might as well be the CEO.

In a pitch made ahead of the company’s to-be-scheduled annual meeting, Icahn and his group of investment firms urged shareholders to withhold their votes for Francis deSouza, who has led Illumina since mid-2016, as well as for the board’s chairman, John Thompson, and the chair of the company’s governance committee, Robert Epstein.

Illumina’s remaining board members—which include Nobel Prize winner Frances Arnold, former FDA Commissioner Scott Gottlieb and Intuitive Surgical CEO Gary Guthart, among others—Icahn has dubbed “acceptable company nominees.”

His own slate, meanwhile, includes Vincent Intrieri, founder and CEO of the investment fund VDA Capital Management; Jesse Lynn, general counsel of Icahn Enterprises; and Andrew Teno, a portfolio manager at Icahn Capital.

The billionaire’s opening public salvo took aim at the drop in Illumina’s stock since it closed its $8 billion purchase of Grail in August 2021—more than 50% off its peak share price at the time, or $50 billion in market value—when it went ahead with the deal without waiting for official sign-offs from antitrust agencies in the U.S. and Europe.

The Federal Trade Commission formally ordered Illumina to begin unwinding its ownership of Grail earlier this month, while the European Union’s competition watchdog issued its objections late last year.

The deal was originally held up over government concerns that, were Illumina to take ownership of a next-generation cancer testing company, it would be tempted to use its massive market share in genetic sequencing to throttle back the DNA research of potential competitors in blood-based tumor screening.

Since then, Illumina has managed Grail at arm’s length, keeping business operations separate while it appeals the decisions made on both sides of the Atlantic—and takes the European Commission to court over whether it had any jurisdiction over the deal at all. 

“The board’s reckless decision to close the Grail transaction over the objections of European regulators has created a situation where Illumina is forced to pay for the ongoing operations of Grail without the ability to integrate Grail into Illumina’s operations and therefore cannot realize any synergies or cost savings from the acquisition,” Icahn and his investors said in their proxy materials, filed with the SEC this week. 

“In addition, the board has painted Illumina into a corner such that the company is now in the untenable position where it may have to pay a significant fine as a result of closing the Grail acquisition and pay up to $1.75 billion in taxes if the company is forced to divest Grail at the same price for which the board agreed to purchase Grail,” they continued.

The group also offered up their own take on early negotiations between Icahn and Illumina leadership in the run-up to the proxy fight, including a March meeting with deSouza and Thompson at Icahn’s Florida offices. 

Icahn “asked during the meeting why the company was pursuing the Grail transaction so maniacally, including closing the Grail deal over the explicit prohibition of antitrust regulators. Chairman Thompson responded, 'Because I want to own it,' and CEO deSouza agreed,” they wrote. 

Illumina had said in its own release last month that during their meetings Icahn said “he believes Illumina has a good business, and he does not presume to know how to run it any better,” and that “he supports Illumina's management of the business, although he was quick to note that he would not admit the same in a proxy fight.”

Grail has spent years—and received $2 billion in venture capital funding, following its 2015 birth as an Illumina spinoff—developing its Galleri test, which aims to detect the presence of as many as 50 different cancers from a single blood draw. 

The groundbreaking test, launched in June 2021, helped the company net $55 million in revenue in 2022, after being ordered by 4,500 prescribers, according to Illumina’s earnings release. But that’s a small drop compared to the more than $620 million Grail racked up in expenses, plus the $3.9 billion goodwill impairment charge that Illumina took on the value of Grail that year.

Illumina has said it expects Grail to revolutionize cancer screening. Getting Galleri into the hands of clinicians worldwide would require the two companies to be integrated at every level, deSouza told Fierce Medtech in an interview last year.

Icahn, meanwhile, has not only called for deSouza’s removal from the board but also for him to be replaced as chief—putting forward former Illumina CEO “Jay Flatley (or similar individual)” as a suggestion.