Today, the European Commission has adopted, under the EU Merger Regulation ('EUMR'), restorative measures requiring Illumina to unwind its completed acquisition of GRAIL, following the Commission's decision to prohibit the transaction.
On 6 September 2022, the Commission prohibited the acquisition of GRAIL by Illumina over concerns that the merger would have stifled innovation and reduced choice in the emerging market for blood-based early cancer detection tests. Illumina and GRAIL unlawfully completed the merger during the Commission's in-depth investigation, in breach of EU merger control rules. In July 2023, the Commission fined both companies for implementing their proposed merger before approval by the Commission.
The decision
With today's decision, the Commission has adopted restorative measures requiring Illumina to divest GRAIL and restore the situation prevailing before the completion of the acquisition.
The Commission thus orders the following measures: (i) divestment measures requiring Illumina to unwind the transaction with GRAIL; and (ii) transitional measures that Illumina and GRAIL need to comply with until Illumina has dissolved the transaction.
Specifically, the divestment measures must be implemented in line with the following principles:
- First, the dissolution of the transaction must restore GRAIL's independence from Illumina to the same level enjoyed by GRAIL prior to the acquisition. Restoring GRAIL's independence will remove the harm to competition resulting from Illumina's ability and incentive to delay or disadvantage GRAIL's rivals.
- Second, GRAIL must be as viable and competitive after the divestment as it was before Illumina's acquisition. This will ensure that the innovation race between GRAIL and its rivals can continue in conditions similar to those in place before the transaction.
- Finally, the divestment must be executable within strict deadlines and with sufficient certainty, so that the pre-transaction situation can be restored in a timely manner.
Illumina can choose the appropriate divestment methods (e.g., via a trade sale, a capital markets transaction), provided that it follows all the principles mentioned above. Illumina has to submit a concrete divestment plan for the disposal of GRAIL, which must be approved by the Commission.
As regards the transitional measures:
- They will ensure that Illumina and GRAIL remain separate until the transaction is unwound in order to prevent further integration of GRAIL into Illumina's business and subsequently irreparable harm to competition.
- They also oblige Illumina to maintain GRAIL's viability by continuing to fund GRAIL's cash needs on an ongoing basis to allow it to further develop and launch its early cancer detection test Galleri.
- They will replace the interim measures adopted by the Commission on 28 October 2022 and that are currently in force.
In case of non-compliance with the restorative measures, the Commission can impose periodic penalty payments of up to 5% of the average daily aggregate turnover of the company under Article 15 EUMR. Moreover, companies failing to comply with the restorative measures can be fined up to 10% of their annual worldwide turnover under Article 14 of the EUMR.
Companies and products
Illumina, headquartered in the US, is a global genomics company, which develops, manufactures and commercialises next generation sequencing ('NGS') systems, including sequencing instruments, consumables and related services. Illumina's NGS systems are medical devices used in a variety of applications, including by customers in the oncology space that develop and run blood-based tests that can detect cancer or select appropriate therapies for cancer patients.
GRAIL, also headquartered in the US, is a healthcare company developing blood-based cancer tests based on genomic sequencing and data science tools. GRAIL's flagship product is "Galleri", an early multi-cancer detection test, whose purpose is to detect around 50 cancers in asymptomatic patients from a blood sample. In April 2021, GRAIL initiated a limited commercialisation of Galleri in the US. GRAIL has two additional pipeline products: (i) a diagnostic aid for cancer testing used to confirm a diagnosis of cancer in symptomatic patients, and (ii) a minimal residual disease test, to detect potential relapse in patients after cancer treatments. GRAIL was founded by Illumina in 2016, and was spun off later in the same year.
Background
The Illumina/GRAIL merger case
Following a referral request from six Member States, on 19 April 2021 the Commission accepted to review the proposed acquisition of GRAIL by Illumina and opened an in-depth investigation on 22 July 2021. On 13 July 2022, the General Court confirmed the Commission's jurisdiction to review the transaction.
While the Commission's in-depth investigation was still ongoing, Illumina publicly announced that it had completed its acquisition of GRAIL. As a result, on 29 October 2021, the Commission adopted interim measures to ensure that Illumina and GRAIL would remain separate pending the outcome of the Commission's merger investigation.
On 6 September 2022, the Commission prohibited the implemented acquisition of GRAIL by Illumina over concerns that the merger would have stifled innovation and reduced choice in the emerging market for blood-based early cancer detection tests. Following the prohibition decision, the Commission renewed and adjusted the interim measures on 28 October 2022.
On 5 December 2022, the Commission sent a Statement of Objections to Illumina and GRAIL outlining the restorative measures it intended to adopt.
Furthermore, on 12 July 2023, the Commission fined Illumina and GRAIL €432 million and €1,000 respectively, for implementing their proposed merger before approval by the Commission, in breach of EU merger control rules.
Procedural background
The obligation not to implement a notifiable transaction either before its notification or before it has been declared compatible with the common market is laid down in Article 7(1) of the EU Merger Regulation ('EUMR'). This standstill obligation prevents potentially irreparable negative impact of transactions on the market, as well as possible irreversible integration of merging parties, pending the outcome of the Commission's merger investigations.
Compliance with the standstill obligation is essential for legal certainty, enables the Commission to conduct a correct analysis of the impact of mergers in the market and prevents the potentially detrimental impact of transactions on the competitive structure of the market. In this way, market forces work for the benefit of consumers. In cases where the standstill obligation has not been respected, and the Commission subsequently decides to prohibit the merger, it is necessary to adopt measures restore the situation pre-transaction.
Article 8(4)(a) of the EUMR authorises the Commission to take appropriate restorative measures to restore the situation prevailing prior to the implementation of the concentration where the Commission finds that a concentration has already been implemented and that concentration has been declared incompatible with the internal market.
