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US Federal Trade Commission Orders Illumina to Unwind Grail Acquisition

NEW YORK – The US Federal Trade Commission on Monday announced that it has overturned a judge's dismissal of antitrust charges against Illumina for its acquisition of Grail and has ordered Illumina to unwind the 2021 deal.

In a statement, the FTC said the deal "would stifle competition and innovation in the US market for life-saving cancer tests" as well as increase prices and decrease choice and quality of such tests. The commission voted unanimously to issue the order and an accompanying opinion.

The agency's order would require Illumina to divest Grail within 180 days; however, Illumina said in a statement that it plans to appeal the decision, which will automatically stay the order.

"Illumina believes that it has a strong case on appeal," the firm said. "Illumina will move as quickly as possible and seeks to arrive at a resolution in the US Court of Appeals by late 2023 or early 2024, at approximately the same time as the decision in the European Court of Justice jurisdictional appeal."

The FTC's actions come as Illumina is under increasing pressure to divest Grail. The European Commission's competition regulators are expected to issue a divestiture order imminently, and activist investor Carl Icahn has launched a campaign to replace up to three Illumina directors with the goal of separating Grail from Illumina through a rights offering.

Illumina announced in 2020 its intention to acquire Grail, in which it held a minority stake, triggering investigations from competition regulators in the US and Europe. In March 2021, the FTC began a legal process in which it sought an order to block the Grail deal.

Illumina pushed ahead and finalized the approximately $8 billion deal in August 2021 despite the investigations, committing to operate Grail as a separate company while the legal issues were resolved.

The administrative trial began in late August 2021, where attorneys for the FTC sought to unwind the Grail deal. The sides submitted additional written testimony over the following months. On Sept. 9, 2022, FTC Chief Administrative Law Judge Michael Chappell dismissed the FTC's charges in an initial decision.

In the FTC's administrative law process, the commission may perform a de novo review of the case's factual and legal issues. The commission said it found that the FTC prosecutor has "established that Illumina's acquisition of Grail violated the law" and claimed "broad discretion to select a remedy."

On March 31 of this year, the commission voted 4-0 to overturn Chappell's ruling and issue the divestiture order.

"Real world evidence of Illumina’s past behavior reinforces the Commission’s antitrust concerns," the FTC wrote in its opinion. "For instance, Illumina gave Grail special pricing and other benefits while it was wholly owned by Illumina."

The FTC also rejected Illumina and Grail's claims that the acquisition would save lives, "noting that their efficiency projections were vague, self-serving, and unsupported. Ultimately, the opinion holds that letting competition spur through innovation among [multi-cancer early detection] test providers would do more to save lives than allowing a monopolist to vertically integrate and capture the market," the FTC said.

Illumina had been a minority shareholder in Grail, having spun off the firm in 2016 prior to buying back the rest of it in 2021. The FTC order will allow Illumina to keep what it held prior to the acquisition date, an amount not to exceed 12 percent of Grail on a fully diluted basis.

Illumina will have to provide Grail with "sufficient funding, financial resources, and working capital necessary for it to independently operate at least at rates of operation as of the acquisition date, and provided for in any planning documents or budgets, to meet all capital calls, and to carry on, at least at their scheduled pace, all research plans, development efforts, regulatory approvals, capital projects, budgets, business plans, and promotional activities," according to the order.

Illumina will also be restricted from buying stock in any firm developing, marketing, or selling multi-cancer early detection tests without the approval of the FTC for at least 10 years.

"Winning both appeals would … [protect] Illumina's ability to optimize a future divesture should that be in the best interest of shareholders," the firm said. "If Illumina does not prevail in this appeal or the ECJ jurisdictional appeal, the company expects to move expeditiously to divest Grail in a manner that serves the best interests of Illumina's shareholders."

In Monday morning trading on the Nasdaq, shares of Illumina were down 2 percent at $228.38.