Watchdog-pile: SEC to probe Illumina acquisition amid Grail deal fallout

The Securities and Exchange Commission (SEC) has begun its own investigation into Illumina’s ill-fated acquisition of Grail—a multibillion-dollar quest first launched nearly three years ago, which has embroiled the DNA sequencing giant in battles with antitrust regulators on both sides of the Atlantic, in addition to racking up multimillion-dollar fines and spurring a shareholder fight that ultimately toppled the company’s leadership.

In a single-paragraph disclosure this week as part of its quarterly earnings report, Illumina said it received word from the SEC in July that it was under the magnifying glass. The Wall Street watchdog has requested documents connected to the company’s acquisition of Grail and its cancer-detecting blood test, including those “related to the conduct and compensation of certain members of Illumina and Grail management, among other things.” Illumina said it is cooperating.

The company is currently searching for a new CEO after its previous chief, Francis deSouza, stepped down in June following a proxy battle led by activist investor Carl Icahn, who said the $8 billion Grail acquisition—and its early closing, ahead of official green lights from international competition authorities—has led to a long tumble in Illumina’s share price, resulting in a $50 billion drop in its market cap, amid other troubles.

During the war of words in the months leading up to Illumina’s annual meeting in late May, where shareholders would vote in one of Icahn’s three hand-picked board nominees and oust the company’s chair, the billionaire investor claimed that Illumina’s directors obtained additional personal liability protection and insurance ahead of the Grail deal’s signing in August 2021—the early closure of which recently earned the company a record $476 million fine from the European Union. 

Icahn also alluded to the possibility, raised by other industry watchers, that Illumina directors could have obtained “sizable, undisclosed financial windfalls” by spinning out Grail from the company in 2015 before ultimately re-acquiring it.

“As we previously stated, we have no idea if any of the allegations in these pieces are true,” Icahn wrote in a May 1 blog post, as he lobbied shareholders to his cause and called for an independent investigation. “[We] would be shocked if regulators were not at least as interested as we are in learning whether there is any merit to the issues raised in these pieces.”

Illumina also reported its earnings for the second quarter of 2023 this week. Revenue totaled $1.18 billion for a 1% gain over the same period in 2022, or 3% when accounting for changes in foreign currencies.

“Illumina's second quarter consolidated revenue grew 8% sequentially from the first quarter, and we saw higher-than-anticipated NovaSeq X shipments,” interim CEO Charles Dadswell said in the company’s announcement

“Despite additional placements, we expect our second half revenue to be negatively impacted by customers remaining more cautious in their purchasing, a more protracted recovery in China, and a larger-than-expected temporary decline in high throughput consumables as customers transition to the NovaSeq X,” added Dadswell, who has also served as general counsel. “In response, we are increasing customer support for the NovaSeq X and continue to manage our expense base in a disciplined way.”

That customer caution is causing Illumina to cut back its financial forecasts for the year: after pitching annual growth between 7% and 10% last quarter, the company says it now expects revenues from its DNA sequencers, supplies and services to remain “approximately flat.”

Illumina also reported that it shipped 109 of its new NovaSeq X instruments in the second quarter, which have been advertised as able to read a person’s entire genetic code for a cost of about $200 per genome.

And regarding the nearly half-billion dollar punishment from the European Union, Illumina said that—while the penalty, equal to 10% of its annual turnover, was budgeted for more than a year in advance—it plans to “issue a guarantee and defer the payment of the fine” pending an ongoing legal appeal as to whether the European Commission had the authority to investigate its acquisition of Grail in the first place.