This story has been updated to include comments from Illumina delivered after publication.
NEW YORK – The European Commission said on Friday that it has adopted interim measures to police Illumina's hold-separate agreement with Grail, while regulatory challenges to the acquisition proceed on both sides of the Atlantic.
The measures include stipulations that Grail will be run by an independent hold-separate manager; prohibitions from sharing confidential business information, except when required to comply with the law or in the course of their supplier-customer relationship; an obligation by Illumina to finance additional funds for Grail's operation and development; that their business interactions take place "at arm's length, in line with industry practice, hence without unduly favoring Grail"; and for Grail to "actively work on alternative options to the transaction" in case the deal must be unwound.
They are legally binding for both Illumina and Grail, the commission said in a statement, and compliance will be monitored by a trustee to be approved by the commission. Failure to comply carries the risk of penalties of up to 5 percent of average daily revenues and fines up to 10 percent of annual global revenue.
"By implementing their merger while the commission's in-depth investigation into this transaction is still ongoing, Illumina and Grail have put at risk the effectiveness of our ex-ante merger control enforcement. This is why we are adopting today measures aiming to prevent harm to competition in the interim period until our final decision on the substance of the case is taken," Margrethe Vestager, executive VP of the commission in charge of competition policy, said in a statement. "In designing the interim measures, we made sure Grail and other companies can continue developing their innovative cancer detection technology so that it can reach patients as quickly as possible, thus saving many lives."
"Illumina's acquisition of GRAIL is pro-competitive and will accelerate access and adoption of life-saving technology for people around the world," an Illumina spokesperson said in an email. "While we maintain that the commission does not have jurisdiction to review this merger, we are cooperating with the commission and we are reviewing today's order. Since closing the transaction, we have upheld our voluntary hold separate commitments, which we based on the commision's model to ensure compliance with the ... process. We will continue to work constructively with the commission so that we can make the [Grail] Galleri test available to as many people as possible, as quickly as possible." Illumina had the opportunity to respond to the commission's objections both orally and in writing. The San Diego-based genomic technology company has challenged the commission's jurisdiction over the deal, arguing that the larger investigation violates the European Union's merger control regulations.
The measures follow the Commission's objection last month to Illumina's decision to close its acquisition of Grail.
Illumina officials have said in the past that they believe the hold-separate agreement was key to closing the deal while remaining in a position to ultimately abide by the outcomes of the commission's in-depth review and the US Federal Trade Commission's ongoing attempt to unwind it.
In a note to investors, analysts for Canaccord Genuity argued that the new measures "should already have been obvious to the two companies," adding that "overall, we are not concerned by the latest 'noise' from the EC."