Illumina said it would appeal a $476 million fine levied Wednesday by the European Union over the San Diego company’s decision to buy multi-cancer screening startup Grail before getting anti-monopoly regulatory clearance.
The fine, which amounts to about 10 percent of Illumina’s sales, is one of the largest ever imposed by the European Union for breaching standstill obligations during an antitrust investigation. It is widely seen as regulators making an example of Illumina.
In a statement, the European Union said Illumina “knowingly and intentionally breached the standstill obligation” and “strategically weighed up the risk of a gun-jumping fine against the risk of having to pay a high break-up fee if it failed to takeover Grail.
“This is a very serious infringement, which requires the imposition of a proportionate fine, with the aim of deterring such conduct.”
Illumina called the fine “unlawful, inappropriate and disproportionate.” While it accrued $458 million so far in anticipation of the large fine, the company said it will seek to have it reversed in a European court.
Illumina’s decision to pursue Grail has already taken a toll, however. Activist investor Carl Icahn launched a proxy fight in May seeking three board seats over investor dissatisfaction with the high costs of the Grail transaction. One Icahn nominee was elected, and Board Chairman John Thompson was ousted. Shortly thereafter, Chief Executive Francis deSouza resigned.
The DNA sequencing pioneer announced its intention to acquire Grail in September 2020. The startup has developed a diagnostic test to detect up to 50 different kinds of cancer from a single blood draw.
Grail’s tests pinpoint cancers using Illumina’s DNA sequencing machines — which lead the market with about 70 percent share. Regulators claim the merger would create incentives for Illumina to give favorable pricing and access to Grail tests over those from Grail’s competitors, which also rely on Illumina equipment.
In July 2021, European regulators opened an antitrust investigation. With the buyout agreement set to expire within weeks, Illumina completed the $7.1 billion takeover of Grail in August 2021 — ahead of regulators completing their investigation.
Illumina is fighting additional legal battles on several fronts over the Grail merger. Among the most closely watched is the company’s challenge to the European Union’s jurisdiction to investigate the acquisition in the first place.
Grail has no sales or operations in countries under the European Union’s umbrella. That means the European Union lacks jurisdiction to review the deal, according to Illumina. The company accuses European regulators of changing their thresholds for anti-trust probes at the last minute so they could assert jurisdiction.
“We closed the transaction in 2021 because there was no impediment to closing in the US, and the deal time frame would have expired before the European Commission could reach a decision on the merits,” the company said in a statement.
“The deal time frame relied on the European Commission’s public statements that it would not assert jurisdiction over mergers of this type until new guidelines were issued, yet the European Commission nonetheless asserted jurisdiction over the merger before issuing the promised guidelines.”
A lower court sided with the European Union. The company now has asked the Court of Justice in Luxembourg — the highest court in Europe — to rule on whether the EU had jurisdiction. A decision is expected late this year or early next.
If Illumina wins, the ruling will eliminate the legal basis for the fine and allow the merger to go forward without further appeals.
The second big legal case involves the U.S. Federal Trade Commission’s efforts to block the merger on anti-monopoly grounds.
Last year, an FTC-appointed istrative law judge found that Illumina’s acquisition of Grail was legal under U.S. anti-monopoly laws. But the commission itself rejected the finding and voted to challenge the Illumina/Grail deal in federal appeals court. Oral arguments are scheduled to begin this fall.
Meanwhile, the European Union completed its anti-monopoly probe in September 2022, ruling that the merger would harm competition. An order requiring Illumina to divest its ownership of Grail is expected to be issued before year-end.
The requirements in that order — including the deadline to sell Grail or take it public — will be the key next step in this saga.
Illumina’s shares ended trading Wednesday up nearly 4 percent at $191.95 on the Nasdaq exchange.
