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Illumina Acquires Grail Despite Ongoing Regulatory Scrutiny

NEW YORK – Illumina said on Wednesday that it has acquired Grail, even though the deal is still under review by regulators in the US and Europe. As a result, Grail is now a wholly owned subsidiary of Illumina.

In a statement, Illumina said it will hold the early cancer detection test maker as a separate company while European regulators review the deal, meaning it will own the firm but operate it separately.

On a conference call with investors following the announcement, Illumina officials said they went ahead with the acquisition because they believed the merger agreement with Grail would expire before they received a decision. "The stakes here are high because, simply put, this deal saves lives," Illumina CEO Francis deSouza told investors.

"While we respect the legal process in both the US and EU, all companies, including Illumina, should be entitled to a timely, fair, predictable process," said Charles Dadswell, general counsel of Illumina. "We will abide by any outcome ultimately reached by the courts."

Illumina believes the European Commission does not have jurisdiction to review the merger and has filed a lawsuit with the EU's General Court challenging the review. "By holding Grail separate while proceedings are ongoing, Illumina is positioned to abide by whatever final decision is reached in these legal processes," the firm said.

Illumina added that "there is no legal impediment to acquiring Grail in the US," but said it is committed to "working through the ongoing US Federal Trade Commission administrative process, and as always, will abide by whatever outcome is ultimately reached in the US courts." The FTC's administrative trial, where the agency is seeking to block the deal, begins next week. An FTC spokesperson declined to comment. The agency had initially sought a restraining order in federal court to prevent the deal from going through but withdrew that request under the belief that the action was not necessary given the European investigation.

In Thursday morning trading on the Nasdaq, shares of Illumina were down 9 percent at $466.87. SVB Leerink analyst Puneet Souda downgraded Illumina's shares to a "Market Perform" rating with a price target of $425.

Illumina announced its plan to acquire Grail, a company it spun off in 2016, in late 2020. Since then, US and European regulators have scrutinized the $8 billion deal and raised concerns that it would lessen competition in cancer early detection, since Illumina's next-generation sequencing technology powers just about every test in this fledgling market.

Last week, European regulators suspended the deadline for their in-depth investigation, raising concerns that the clock would run out on the merger agreement.

Illumina CFO Sam Samad noted during the call that the company plans to issue approximately 9.8 million shares and deploy $3.5 billion to complete the acquisition. About half of Grail's shareholders chose to elect contingent value rights to revenue generated by Grail's tests under Illumina. Grail had a cash balance of approximately $500 million, after accounting for transaction-related costs. The $35 million monthly continuation payments Illumina had been making to Grail under their merger agreement "represents a rough approximation" of the subsidiary's monthly cash burn rate for the rest of 2021, Samad said, an amount likely to increase in 2022.

"The merger with Illumina will get the Galleri test to people far faster. We aim to accelerate this process so the test will be available in doctors' offices everywhere, fully reimbursed," Grail CEO Hans Bishop said in a statement.