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EU to Disallow Illumina's Grail Purchase

This story has been updated to include comments from the European Commission and information from an Illumina SEC filing.

NEW YORK – Illumina said on Tuesday that it has received a decision from the European Commission that will prohibit the firm from keeping liquid biopsy maker Grail.

In a statement, the firm said it is anticipating a divestment order in the coming months. Illumina plans to appeal the decision and "will begin reviewing strategic alternatives for Grail in the event the divestiture is not stayed pending Illumina's appeal," the firm said.

"With this transaction, Illumina would have an incentive to cut off Grail's rivals from accessing its technology, or otherwise disadvantage them," EC Director General for Competition Margrethe Vestager said in a statement, noting that Illumina is the "only credible supplier" of next-generation sequencing technology needed to develop and process this type of test. "It is vital to preserve competition between early cancer detection test developers at this critical stage of development. As Illumina did not put forward remedies that would have solved our concerns, we prohibited the merger."

"We are disappointed with the European Commission's decision prohibiting us from acquiring Grail back to Illumina," said Charles Dadswell, general counsel of Illumina. "As we continue to believe, this merger is pro-competitive and will accelerate innovation. Last week the Chief Judge of the US Federal Trade Commission issued a decision supporting Illumina acquiring GRAIL."

Separately, the FTC said Sept. 2 that it plans to appeal the administrative law judge's initial decision that was favorable to Illumina's case to keep Grail.

Illumina first announced plans to acquire Grail in late 2020 for approximately $8 billion. In April 2021, European competition regulators said they would review the deal and later expanded that review into an in-depth investigation.

In August 2021, Illumina went ahead with the acquisition while vowing to keep Grail operating separately until the legal proceedings were resolved. The EC has since opened a second investigation into the deal and recently alleged that Illumina "jumped the gun" by finalizing the deal before regulators completed their review.

Illumina has challenged the EC's jurisdiction to review the deal and lost a bid to halt the investigation in July. The company is appealing that decision.

Illumina could be forced to pay a $300 million termination fee to Grail if the deal doesn’t close, according to terms of the 2021 agreement.

In a Tuesday filing with the US Securities and Exchange Commission, Illumina said that being forced to divest Grail "will impose significant costs and additional liabilities on Illumina, including significant advisory fees and additional expenses, and may result in loss of revenue and other adverse effects on Illumina’s business, financial condition, and results of operations."

Illumina could be required to sell Grail "on terms that are materially worse than the terms on which Illumina acquired Grail," the firm said. Such a sale could "incur significant tax liabilities" and could "divert management’s attention and company resources away from existing operations and other opportunities that may have been beneficial to Illumina."

In Tuesday morning trading on the Nasdaq, shares of Illumina were up 4 percent at $204.61.

"Investor sentiment based upon our extensive conversations has been decidedly negative towards the Grail deal; hence, we believe terminating the deal and a subsequent divestiture would likely be viewed as a positive," Cowen's Dan Brennan wrote in a note to investors on Tuesday.