The DNA sequencing giant Illumina is locked in a battle with the European Commission (EC) over its $7.1 billion acquisition of Grail. The case represents a significant expansion of EU merger control. Grail has no revenues in Europe and, as a result, the acquisition was not originally caught by EU merger control rules – or indeed national merger control rules anywhere in the EU. Despite this, the EU has opened an in-depth investigation of the deal and, on 20 September, issued proceedings against Illumina for its decision to close the transaction while that investigation was ongoing (so-called ‘gun jumping’) while at the same time ordering hold separate measures.
This is the first use by the EC of its ‘Article 22’ powers, which allow it to bring in for review a merger not originally meeting the turnover thresholds under the EU Merger Regulation (EUMR), since it outlined new policy in this area in guidance issued in March 2021. The Article 22 referral mechanism was initially designed to allow member states with no national merger control regimes to refer cases to the EC. However, in its new guidance, the EC has indicated that it intends to use Article 22 to catch deals not otherwise subject to review in sectors like biotech, pharma and digital industry where innovation is a crucial parameter of competition and newly launched products can rapidly grow in significance. In these areas, an emerging competitor or technology can have material competitive significance even if it has limited turnover. The case also represents a further step by the EC towards more aggressive pursuit of gun-jumping, a major recent trend in European enforcement.
Illumina develops and commercialises DNA sequencing systems together with consumables and services for genetic analysis. It is a world leader in the field. Grail has developed tests, based on genomic sequencing, intended to allow the detection of around 50 cancer types via blood samples in patients that are not showing symptoms. In April 2021, Grail initiated a limited commercialisation of its products in the US. However, it has no EU sales.
Due to Grail’s lack of European sales, the transaction did not trigger the thresholds under the EUMR. However, Article 22 of the EUMR allows member states to request that the EC initiate a merger review even where the EU thresholds are not met, if the EC agrees to take the case. In this case, six EEA member states – France, Belgium, Greece, the Netherlands, Iceland, and Norway – submitted requests to the EC. (There have been press reports suggesting that the EC may itself have solicited those requests.) The EC accepted the requests on 19 April 2021 and opened an in-depth investigation on 22 July, indicating that it had substantial concerns in relation to the merger.
The EC has not made the precise nature of its concerns public. However, the FTC in the US is also opposing the transaction on the basis that existing and potential competitors to Grail in the cancer detection test space also rely on Illumina’s sequencing technology. As a result, it is concerned that Illumina might have the ability and incentive to cut short innovation efforts that might result in alternatives to Grail’s technology. The EC’s concerns are likely to be similar.
The opening of the EC investigation triggered the standstill obligation under Article 7 EUMR, which obliges parties to a merger to withhold from implementing it prior to clearance from the EC. This caused a problem for Illumina as the acquisition window is scheduled to expire on 20 December this year. However, the EC’s in-depth investigation is not scheduled for completion until after that date. As a result, Illumina faced a choice between completing the deal in the face of the standstill obligations, or risking its complete collapse. That might seem like poor planning, but since the EU merger control thresholds were not initially met, Illumina could not have known in advance whether or when an EC investigation into the deal might start.
Illumina attempted to deal with the situation by completing subject to unilateral undertakings to hold the two businesses separate – while at the same time challenging the EC’s jurisdiction in the EU courts. However, the EC has taken the view that Illumina is nonetheless in breach of the EUMR standstill obligation and, in any event, that the voluntary undertakings do not go far enough. It has therefore set out its intention to impose interim measures and instituted gun-jumping proceedings that could result in very large fines. In its two most recent gun-jumping cases the EC imposed fines of €118 million on Altice and €28 million on Canon.
Illumina appears to have been unlucky enough to find itself being used as a test-case for the Article 22 process. However, its situation does serve as a warning to others about the EC’s increasing activism in relation to mergers in tech sectors.