Signal: Illumina under investigation by SEC over $8bn Grail acquisition

Illumina has faced a series of legal challenges to its 2021 acquisition of Grail; regulators allege willful ignorance.

Isaac Hanson August 16 2023

US-based sequencing and diagnostics company Illumina reported in its Q2 filing that it is under investigation by the Securities and Exchange Commission (SEC) over its $8bn acquisition of Grail, the manufacturer of a proprietary multi-cancer early detection (MCED) test.

This is the latest in a line of lawsuits faced by the firm over its decision. Grail began as a branch of Illumina and was then spun out as an independent start-up in 2016, though the parent retained a 12% stake. In 2020, Illumina opted to reacquire the company and announced a deal for $7.1bn.

The saga is long, complicated and neatly outlined here, but by June of this year Illumina had lost its CEO, been fined the maximum 10% of annual turnover by the EU (with an indication that a greater figure would have been sought if possible) and been ordered to divest Grail by the Federal Trade Commission (FTC).

The issue at fault is twofold: at a base level Illumina stands accused of anticompetitive practices through the purchase, as the MCED test that Grail produces – and others like it by competitors – can only be processed by technology of which Illumina is the largest provider. The second problem is that, despite being told in July 2021 that the merger was under investigation by the European Commission, Illumina completed the deal a month later.

The company has argued that its acquisition is a moral one that will accelerate the production of lifesaving tests and that it had to be completed within its initial deal period – ending in November 2021 – to avoid having to renegotiate, thereby slowing down the expansion. Regulators see it differently.

The European Commission described the acquisition as "an unprecedented and very serious infringement undermining the effective functioning of the EU merger control system." It found that the company had made a strategic decision to continue with the merger despite knowing it was possible it would be disallowed as the break-up fee for failing the takeover would outweigh the loss of profit from the divestment.

This appears to be an accelerating trend in the medical field, following the news of UnitedHealth’s legal troubles. Legislation has not yet caught up to the "tidal wave" of mergers that the FTC reported in 2021, meaning investigations are either being suspended or cut short as regulators scramble to get on top.

Companies may be taking advantage of this situation to pursue a more aggressive mergers and acquisitions (M&A) strategy than they would normally, knowing that the profits outweigh the costs of potential future fines. When companies beg forgiveness and not permission, there is a danger that anti-competitive practices will go unnoticed.

Our signals coverage is powered by GlobalData’s Thematic Engine, which tags millions of data items across six alternative datasets - patents, jobs, deals, company filings, social media mentions and news — to themes, sectors and companies. These signals enhance our predictive capabilities, helping us to identify the most disruptive threats across each of the sectors we cover and the companies best placed to succeed.

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