Illumina Provides Update Following EC Order to Divest GRAIL
Illumina, Inc. (NASDAQ: ILMN), responded on Friday to a directive received from the European Commission (EC) instructing the company to divest GRAIL. While the company still has one round of appeal, there is a pending jurisdictional challenge is currently pending at the European Court of Justice (ECJ). It is increasingly likely that last week’s decision will now result in a divestiture process for GRAIL.
Top of mind for investors is the valuation the asset would command in today’s market environment, which is dramatically different from 2020 when Illumina originally announced the transaction for $8 billion total consideration including $3.5B in cash and $4.5B in stock. It is difficult to compare transactions given the nuance between the different companies and limited revenue associated with the industry, but liquid biopsy transactions following the GRAIL deal have been at significantly lower valuations. For example Exact Sciences acquisition of Thrive announced in 2020 commanded a valuation of $2.15B, Agilent’s $695M acquisition of Resolution Bioscience in 2021, Neogenomics acquisition of Inivata for $415M in 2021, and more recently Quest’s acquisition of Haystack Oncology for $300 million in early 2023. Furthermore, comparable companies such as Guardant Health and Natera have seen a 50-70% reduction in valuation since that timeframe.
The company highlighted that it is focused on optimizing shareholder value, and the flexibility the EC’s offers in terms of transaction structure, reflecting the positive dialogues Illumina has maintained with the EC. Under the terms of the EC’s order, Illumina is granted a twelve-month window for the divestiture of GRAIL, with the possibility of a three-month extension. During this period, the company is allowed to explore various structures for the divestiture, including options such as a third-party sale or a capital markets transaction. Illumina will lead the divestiture process and, with the support of financial and legal advisors, and stated that it has already initiated the necessary preparations if required.
Consistent with previous interim measures orders, Illumina is obligated to continue funding GRAIL until the divestiture is complete. In the event of a capital markets transaction, Illumina must capitalize GRAIL at the time of the transaction, providing two-and-a-half years of funding based on GRAIL’s long-term plan. Furthermore, the order allows Illumina to retain a stake in GRAIL of up to 14.5%, along with the possibility of reestablishing the royalty arrangement that was previously in place with GRAIL.
The company said that it would provide a further update on its third-quarter earnings call scheduled for November 9.