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European Commission Says Illumina 'Jumped the Gun' With Grail Deal, Threatens Fines

NEW YORK – Illumina may have run afoul of European merger regulations by completing its purchase of Grail in August 2021 and could face fines up to 10 percent of annual revenues.

On Tuesday, the European Commission (EC) sent Illumina and Grail a Statement of Objections with preliminary findings alleging a breach of the so-called "standstill obligation" of the European Union's merger regulations. The text of the regulations suggests that a merger "shall not be implemented … until it has been declared compatible with the common market."

At the time that Illumina finalized the $8 billion deal last summer, European competition regulators were still working on a Phase II in-depth review of it.

"If companies jump the gun and implement deals that are subject to our review, they undermine the effective functioning of our EU merger control system," Margrethe Vestager, EC executive VP in charge of competition policy, said in a statement. "This is a serious breach of the standstill obligation. Illumina and Grail have openly done so by implementing their deal while the Commission is still carrying out its in-depth investigation. This could result in hefty fines."

The specifics of the objections are not known and the EC declined to provide a copy of the document sent to Illumina.

"Illumina will continue its efforts to persuade the Commission that its merger with GRAIL is pro-competitive and in the best interests of patients in Europe and elsewhere," an Illumina spokesperson said in an email.

Illumina has previously said it is operating Grail as an independent business under a "hold separate" agreement intended to satisfy European regulators. The firm did not respond to a request for comment.

European regulators announced in April 2021 that they would review Illumina's Grail acquisition under recent guidance that expanded their purview to cover deals for companies such as Grail, which would not meet traditional revenue thresholds for review. A few months later, the EC expanded its investigation to assess whether the deal might limit competition in the multi-cancer early detection testing market.

After Illumina went ahead and bought Grail, the EC opened another investigation into whether Illumina had acted inappropriately.

Illumina had challenged the EC's jurisdiction to review the deal, but was last week rebuffed by the European General Court, which ruled the investigation can proceed.

The EC must still make a final determination on the alleged breach of the standstill obligation. "The sending of a Statement of Objections does not prejudge the final outcome of the investigation," the EC said in a statement. Grail and Illumina will have the opportunity to respond to the letter.

Illumina said it expects a final decision later this year or in early 2023.

If the EC determines Illumina and Grail breached the standstill obligation, it can impose a fine of up to 10 percent of each company's annual worldwide revenues. In 2021, Illumina reported $4.53 billion in revenues and has guided for 2022 revenues in the range of $5.15 billion to $5.24 billion.

Illumina also faces pressure from the US Federal Trade Commission, which is seeking to unwind the Grail deal

"The EC's statement again highlights the regulatory uncertainty surrounding the Grail acquisition, which prevents Illumina from potentially realizing cost synergies while the [multi-cancer early detection] opportunity remains years from generating meaningful revenue," SVB Securities Analyst Puneet Souda wrote in a note to investors.

In afternoon trading on the Nasdaq, shares of Illumina were up 4 percent at $194.69.