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Illumina (ILMN) Shares Slip on GRAIL Buyout Deal Completion

Illumina, Inc. ILMN recently announced the completion of its long-standing and highly-disputed acquisition of GRAIL -- a healthcare company focused on life-saving early detection of multiple cancer to accelerate patient access to the latter’s multi-cancer early-detection test. The latest move follows a definitive agreement signed by Illumina to acquire GRAIL in September 2020.

It is to be noted that the European Commission’s (EC) decision is still pending regarding this $7.1-BILLION (in cash-and-stock as explained in September 2020) colossal takeover. According to Illumina, GRAIL will continue to operate as a separate company until the ongoing regulatory review by the EC is completed.

Following the news of this acquisition, shares of Illumina stumbled 7.9% on Aug 19 to close the session at $470.36, as the company announced that it is likely to be fined for completing its acquisition of GRAIL while the EC was still reviewing the merger. Going by a Reuters’ report, breaches can lead to fines of as much as 10% of the aggregate turnover of the companies.

Legal Implications Related to Acquisition

Illumina noted that GRAIL has no business in the European Union (EU). The company believes the EC does not have jurisdiction to review the merger as the EU merger thresholds are not met, nor are they met in any EU member state. The General Court of the EU will hear Illumina's jurisdictional challenge later in 2021. By holding GRAIL separate while proceedings are ongoing, Illumina is positioned to follow whatever final decision is reached in the legal processes.

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Per Illumina’s management, the decision to make the acquisition and hold the companies separate allows the regulatory processes to proceed while safeguarding the life-saving, pro-competitive benefits of this transaction without the expiry of deal.

Transaction Details

As previously disclosed, Illumina's acquisition of GRAIL included cash and shares of Illumina common stock as well as contingent value rights (CVRs) or additional shares of Illumina common stock.

GRAIL stockholders, including Illumina, are entitled to cash consideration of nearly $3.5 billion or, excluding Illumina, nearly $3.1 billion.

How Strategic is the Acquisition?

Cancer kills around 10 million people worldwide annually and 600,000 people in the United States alone. Nearly 71% of cancer deaths have no early detection screening recommended, and most cancer are detected when chances of survival are lower. As the early detection of cancer saves lives, the new genomic test will be nothing short of a revolution for human health and the economics of healthcare.

Moreover, combining the two companies is the quickest way to expand the availability and affordability of the test. As Illumina entered the non-invasive prenatal testing space, prices dropped, reimbursement expanded, the number of providers increased, and more expectant parents gained access to testing.

GRAIL's Galleri blood test detects 50 different types of cancer before they are symptomatic. Currently, this groundbreaking test is available in the market but costs as high as $950 because it is not covered by insurance companies. According to Illumina, with the acquisition, the company's expertise in market development and access will lead to coverage and reimbursement for this test. This will accelerate access and adoption of this life-saving test worldwide.

Industry Prospects

Per a report by RESEARCH AND MARKETS, the global cancer testing market or cancer screening market size is estimated reach a worth of $123-$133 billion as of 2018 and is expected to see a CAGR of 4.5-5.5% by 2025.

Considering the market opportunities, Illumina’s latest acquisition to accelerate patient access to the GRAIL’s multi-cancer early-detection test is well-thought of.

Recent Developments

In April 2021, Illumina entered into a new partnership with Kartos Therapeutics to co-develop a TP53 companion diagnostic based on the content of Illumina’s comprehensive genomic profiling assay -- TruSight Oncology 500 (TSO 500). The partnership with Kartos builds on a solid history and varied portfolio of Illumina’s oncology partnerships with industry leaders, with the integrated goal of advancing cancer diagnostics and precision medicine.

In February 2021, Illumina entered into an agreement with the Belgian Society of Medical Oncology (BSMO) which is running a new national pilot to assess the use of comprehensive genomic profiling (CGP) in 864 patients with advanced metastatic cancer.

Price Performance

Shares of the company have gained 39.5% in a year’s time against the industry’s fall of 0.3%.

Zacks Rank and Key Picks

Currently, the company carries a Zacks Rank #3 (Hold).

A few better-ranked stocks from the broader medical space are Envista Holdings Corporation NVST, BellRing Brands, Inc. BRBR and Henry Schein, Inc. HSIC, each carrying a Zacks Rank #2 (Buy). You can see the complete list of Zacks #1 Rank (Strong Buy) stocks here.

Envista Holdings has an estimated long-term earnings growth rate of 26%.

BellRing Brands has an estimated long-term earnings growth rate of 22%.

Henry Schein has a projected long-term earnings growth rate of 14%.


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Illumina, Inc. (ILMN): Free Stock Analysis Report
 
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