July 12, 2023 | The European Commission announced this morning that it has fined Illumina and GRAIL approximately €432 million and €1,000 respectively—both record fines—for implementing their proposed merger before approval by the Commission, in breach of EU merger control rules.
In a statement, Illumina responded: “We believe that the fine announced by the European Commission (EC) today—while expected and accrued for over the last year—is unlawful, inappropriate and disproportionate. We will appeal today’s decision.”
In 2016, Illumina spun out a liquid biopsy company powered by Illumina sequencing technology seeking to create a multi-cancer early detection test. GRAIL quickly began raising funds and sharing positive data on detection of early-stage cancers via a blood test including colorectal, esophageal, head and neck, liver, ovarian, pancreatic, triple-negative breast, lung cancers and more. In September 2020, Illumina announced its intention to acquire GRAIL. That acquisition was completed in August 2021, though without regulatory sign-off.
Among the reasons Illumina gave to bring GRAIL back in house: to increase Illumina’s directly accessible total addressable market and offer future growth opportunities. “GRAIL extends Illumina’s portfolio to include cancer screening, diagnosis and cancer monitoring, creating a portfolio of best-in-class, proprietary tests in each of the major oncology testing application areas,” according to a press release at the time.
But in September 2022, Illumina received a decision from the European Commission (EC) prohibiting the company’s acquisition of GRAIL, even though the US Federal Trade Commission had approved the deal. On December 5, 2022, the EC further outlined the divestiture measures it considered necessary to dissolve the transaction. Among them: restoration of GRAIL's independence from Illumina as a viable and competitive company executed “swiftly and with sufficient certainty.”
Illumina appealed the decision, and in January 2023, speaking at the J.P. Morgan Healthcare Conference, Illumina’s then-CEO Francis deSouza ascribed to the European Commission the highest of motivations. “They want to make sure we’re doing the right thing for GRAIL and GRAIL’s customers. They recognize the life-saving potential of the GRAIL Galleri blood test,” he said. “What they’re saying is, ‘Whatever we do, we have to make sure we protect GRAIL’s ability to be successful in the future and bring the potential life-saving benefits of that test to customers around the world.’”
The fines today, however, are more about EC rules than GRAIL or GRAIL customers.
“EU merger rules require that merging companies not to implement mergers until approved by the Commission ("the standstill obligation"). It is a cornerstone of the European merger control system, that enables the Commission to carry-out its role before structural changes modify the competitive landscape,” the Commission press release read. “In today's decision, the Commission confirms its preliminary view that Illumina and GRAIL intentionally breached the standstill obligation. The Commission found that by closing the transaction Illumina was able to exercise a decisive influence over GRAIL and it actually exercised it.”
The fines—about $479 million for Illumina and about $1,100 for GRAIL—are set according to EU Merger Regulation (‘EUMR'). The Illumina fine is a record high for EC fines. “In setting the amount of the fines, the Commission considers the gravity of the infringement as well as the existence of mitigating or aggravating circumstances. The fine must also ensure a sufficiently dissuasive and deterrent effect,” the Commission wrote. Fines can total “up to 10% of the aggregated turnover of companies”, and the Commission chose to meet that limit for Illumina. The $1,100 GRAIL fine is “a symbolic fine”, the Commission stated. This is the first time the EC has imposed a fine on a target company.
In the Commission’s view, Illumina thumbed its nose at the standstill obligation and deliberately ignored the Commission’s process:
“Illumina 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. It also considered the potential profits it could obtain by jumping the gun, even if it were ultimately forced to divest GRAIL. It then intentionally decided to proceed and to close the deal while the Commission was still investigating the transaction that was ultimately prohibited. This is a very serious infringement, which requires the imposition of a proportionate fine, with the aim of deterring such conduct. In setting such a fine, the Commission considered Illumina's deliberate strategy, and took due account of the hold separate measures adopted by the company as a mitigating circumstance.”
Illumina, in its response statement this morning, outlined its own view of both the timeline and the European Commission’s jurisdiction:
“We closed the transaction in 2021 because there was no impediment to closing in the US and the deal timeframe would have expired before the EC could reach a decision on the merits. The deal timeframe relied on the EC’s public statements that it would not assert jurisdiction over mergers of this type until new guidelines were issued, yet the EC nonetheless asserted jurisdiction over the merger before issuing the promised guidelines. To respect the EC’s process, we voluntarily held the companies separate upon closing and have abided by the EC’s interim measures while the regulatory and judicial processes conclude. Illumina’s challenge of the EC’s jurisdiction to review the GRAIL transaction is pending before the European Court of Justice (ECJ). Success in that appeal would eliminate the basis for any fine and enable Illumina to expand the availability, affordability and profitability of the groundbreaking Galleri test in the $44-plus billion multi-cancer screening market. The decision in that appeal is expected in late 2023 or early 2024.”