Illumina sets deadline for proxy fight over its board of directors

Mark your calendars. Illumina has set a date to tally up the votes from shareholders on who should serve on its board of directors. 

The company will host its annual meeting virtually on May 25 and will be taking ballots until 11:59 p.m. PT the night before. 

Activist investor Carl Icahn has been waging a public proxy fight against the DNA sequencing giant since early March—largely over the company’s $8 billion acquisition of Grail and its resulting legal quarrels with antitrust regulators as well as the decline in the company’s stock price that has followed in the time since.

Icahn has put forward three nominees he wants to see added to Illumina’s nine-seat board. He's also named the three he would see replaced: CEO Francis deSouza, Chair John Thompson and the company’s governance committee head, Robert Epstein.

Illumina, in response, has repeatedly described Icahn’s nominees as unqualified and specifically lacking experience in the genomics and life science industries. They include Vincent Intrieri, Jesse Lynn and Andrew Teno, who have each at one time held senior positions within Icahn’s constellation of funds and businesses. The company also stated this week that Icahn’s firms own less than 1.5% of Illumina’s outstanding common stock.

Illumina published its definitive proxy statement (PDF), highlighting the backgrounds of its current slate of board members, which include Nobel Prize winner Frances Arnold, former FDA Commissioner Scott Gottlieb and Intuitive Surgical CEO Gary Guthart, among others.

Regarding its purchase of Grail—the developer of the blood-based Galleri test for detecting more than 50 different types of cancer and the company Illumina has managed for nearly two years at arm's length—Illumina reiterated that it would continue its appeals against international competition watchdogs. The Federal Trade Commission (FTC) and the European Commission have both said the deal should have been blocked and that Illumina’s ownership of the company should be unraveled.

That could be an expensive predicament, according to Icahn, who said the company may end up having to pay more than $1 billion in taxes related to an eventual sale. Meanwhile, Illumina has said it expects to shell out more than $450 million in potential EU fines as punishment for moving forward with the acquisition in August 2021 without a final regulatory green light.

Earlier this week, Illumina’s U.S. appeal took a step forward as it was placed on the fast track for a court review of the FTC’s divestment order, according to Reuters

In its request to the New Orleans-based Fifth Circuit Court of Appeals, Illumina and Grail said that expediting its appeal would help save lives from cancer—and that the sooner they could be allowed to fully combine their businesses, the faster patients could begin receiving an earlier diagnosis.

“Although it is difficult to quantify with precision the full extent by which the transaction will accelerate the wide-spread adoption of Galleri, it is conservatively estimated that a reunited Illumina and Grail will accelerate Galleri’s adoption by at least one year, leading to an additional 10 million tests performed in the United States over a nine-year period (2022-2030), and saving thousands of lives in the United States alone,” Illumina wrote to the court.

Illumina also claimed the FTC’s order violates the U.S. Constitution, saying the commissioners’ powers have been “improperly delegated,” and compared the harms posed by the FTC’s decision with violations of First Amendment rights and the free exercise of religion.

The company has estimated that it would wrap up its appeal in the U.S. by late 2023 or early 2024—on about the same timeline as its ongoing legal battle in the EU, after it sued the commission saying it had no jurisdiction to block the Grail deal.

At the same time, Illumina told shareholders that Grail plans to launch a separate DNA test this year for minimal residual disease to help spot the early signs of tumor recurrence in the bloodstream. The company said Grail’s Galleri alone could become a major player in an estimated $44 billion market for multi-cancer screening tests.

Meanwhile, in his letter to shareholders April 21, Icahn pitched the ongoing proxy vote as a potential “turning point for corporate governance” and left open questions on Illumina’s case for owning Grail in the first place.

“Did CEO Francis deSouza and the board of directors pay $10 billion for Grail knowing that 1.5 years later it would generate only $100 million in revenue and lose $800 million in operating income per year?” he wrote. “How does Illumina’s core business generate any synergies with Grail? Besides draining core Illumina of all of its cash flow, what ‘benefits’ does Grail receive from a combination of the two entities? What benefits does core Illumina obtain, if any, from owning Grail?”