Illumina’s Quest for Grail Ends with a Bang – One Step Closer to Receiving a Fine for Gun Jumping

The Illumina/Grail saga is turning into a nightmare for the US biotech company Illumina. On 5 December 2022, it received a statement of objections (SO) from the European Commission (the EC) setting out the restorative measures to be taken by Illumina to unwind the acquisition of the US biotech start-up Grail. The SO brings Illumina one step closer to what is expected to be a record fine for gun jumping. In 2018, the EC imposed a €124 million fine on the international telecom company Altice for jumping the gun. Rumour has it that the fine Illumina is facing may be more than three times higher.

Revival of the Dutch Clause

In March 2021, the EC announced its intention to breathe life into Article 22 of the EU Merger Regulation (EUMR), issuing a guidance on the application of the article to problematic mergers falling below the notification thresholds. As examples are mentioned transactions in the digital and pharma sectors.

Article 22 allows Member States to refer mergers to the EC where the national thresholds are not met but there is a perceived risk that the transaction may have a negative impact on competition within the EU. It was initially the result of a compromise between the Member States when negotiating the original merger rules in the 1980’s. At the time, some Member States still lacked national merger regimes and were now given a chance to have transactions reviewed by the EC instead. When these Member States later adopted their own merger regimes, the article faded into oblivion.

Following a number of deals escaping merger review despite being conceived as problematic, the EC was searching for a solution to the perceived problem of ‘killer acquisitions’. It eventually decided that Article 22 EUMR, also known as the Dutch Clause, was an apt tool for this. However, while issuing the guidance in March 2021, it was in fact already relying on its ‘new’ tool in the case against Illumina.

The Illumina/Grail Saga

In September 2020, Illumina announced the acquisition of its customer Grail. The transaction would see Illumina welcome home its spinout (Grail had been spun off four years earlier). As Grail did not yet have any turnover either in the EU or elsewhere, the transaction did not meet any notification thresholds in the EU and was therefore not notified.

In December that year, the EC received a complaint against the transaction and invited the Member States to ask for an Article 22 referral. Several Member States did so. In April 2021, the EC commenced its review of the transaction.

Illumina questioned the EC’s powers to apply Article 22 EUMR and filed a complaint with the General Court challenging the EC’s jurisdiction to review the deal. Illumina also decided to ignore the standstill obligation. In August 2021, it closed the transaction, prompting the EC to adopt interim measures and to open an investigation to determine whether Illumina was in breach of the standstill obligation under the EUMR.

In July 2022, the General Court delivered its ruling, confirming the EC’s powers to review the transaction. Less than two months later, on 6 September 2022, the EC prohibited the transaction finding that the vertical integration between the parties could kill the ongoing innovation race between developers of multi-cancer early detection tests. As a result, Illumina will now have to unwind the acquisition to give the prohibition decision full effect.

Through the SO, the EC sets out the measures it deems necessary to restore competition, including both divestment measures and transitional measures that the two companies will have to comply with until the transaction has been dissolved. In its final decision, the EC is expected to also impose a record fine on Illumina for implementing the transaction while it was still being reviewed by the EC.

One cannot help but wonder whether Illumina regrets its decision to spin out Grail in 2016.