EU orders Illumina to split from Grail as penance for closing $8B deal

More than a year after vetoing its $8 billion acquisition, the European Commission has officially ordered Illumina to perform its penance by cutting ties completely with the cancer blood test developer Grail.

The DNA sequencing giant gets to choose exactly how: It could sell off Grail to another company or spin it out into a publicly traded enterprise, for example—and keep the proceeds from doing so—provided the move is completed in a timely manner and returns Grail to the same levels of independence and commercial viability that it had before Illumina closed the deal in August 2021, the commission said.

In its announcement, the EC ordered Illumina to “submit a concrete divestment plan for the disposal of Grail,” which will then be reviewed for approval. In the meantime, Illumina will remain on the hook for funding Grail’s ongoing need for cash; the missive explicitly states that the company must support the development and rollout of Galleri, a blood test designed to detect the presence of as many as 50 different cancers. 

If Illumina does not comply, the commission noted that it could “impose periodic penalty payments” of up to 5% of the companies’ daily income, and it probably wouldn’t shy from doing so. This past July, the EC handed down a fine equal to 10% of Illumina’s annual turnover—a record amount totaling 432 million euros, or about $476 million U.S., with Grail taking a “symbolic” 1,000 euro hit—as punishment for finalizing its $8 billion purchase before the deal received a green light from European antitrust watchdogs.

“Today’s decision restores competition in the development of early cancer detection tests. These tests could represent a breakthrough in our fight against cancer. 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,” said Didier Reynders, the European commissioner for justice who has taken charge of competition policy.

The commission’s previous antitrust chief, Margrethe Vestager, stepped down from the position in early September after becoming a candidate for president of the European Investment Bank.

"Illumina is committed to resolving all issues regarding Grail in a timely manner, with the objective of achieving the maximum value for shareholders and the best outcome for Grail," the company said after reviewing the order, in a statement the following day. "Notably, the terms of the order provide for flexibility in transaction structure, an encouraging outcome from Illumina's ongoing dialogue with the EC." 

Illumina will have twelve months to complete the task, with the potential for a three-month extension, the company said, while noting it has already begun the preparatory work. According to the details of the order, if it decides to release Grail through a public offering, Illumina must supply two-and-a-half years of funding based on Grail's long-term plan. Illumina may also retain a stake in Grail of up to 14.5%—the amount it once held in its former spinout, which first launched in 2016—and re-establish its previous royalty agreements.

Illumina has been managing Grail at arms’ length since 2021, and has held off on fully integrating the company into its business as its case winds its way through regulatory agencies and courts on opposite sides of the Atlantic.

Illumina previously sued the commission in the European Court of Justice, saying that since Grail has yet to do any business on the continent, it lacks the jurisdiction to block the acquisition. That matter is currently under appeal, and Illumina has previously said that it expects to reach a resolution by the end of this year or in early 2024. 

That timeline is similar to a separate appeal underway in the U.S., where Illumina is looking to reverse the Federal Trade Commission’s own divestment order handed down earlier this year. 

The FTC changed its course this past April after the agency’s administrative law judge had ruled in Illumina’s favor and denied the antitrust challenges the September before. The European Commission, meanwhile, has telegraphed its intention to order the complete sale of Grail since the intervening December of that year.

Both European and U.S. regulators have said they oppose the deal on the grounds that Illumina’s ownership of a genomic cancer test could tempt the company to throttle the R&D work of potential liquid biopsy competitors—who would also rely heavily on Illumina’s DNA sequencing hardware, due to the company’s large international market share.

Going forward, Illumina has said it will pursue divestment strategies on parallel tracks with its ongoing appeals. A jurisdictional win in Europe would effectively nullify the order to split off the cancer testing business, but in its latest statement, the company promised to divest Grail if it fails to succeed in either the ECJ or the U.S. Fifth Circuit Court of Appeals, which heard oral arguments in mid-September.

Illumina said it would respond to further questions from investors during its third quarter earnings call, scheduled for November 9.

Editor's note: This story was updated October 13 with additional statements from Illumina and details about the divestment order.