Carl Icahn sues Illumina and its board over Grail deal fallout

Activist investor Carl Icahn is suing Illumina’s ex-CEO and members of its board over the nearly $7 billion acquisition of early cancer detection company Grail.

The civil suit seeks millions of dollars in damages, as well as the removal of current board members from the San Diego DNA sequencing company. The complaint generally reiterates the issues raised by Icahn in previous months about the handling of the acquisition by Illumina’s leadership.

Grail was originally a spin-off firm from Illumina that started in 2015. The company developed a diagnostic test to detect up to 50 different kinds of cancer from a single blood draw. Illumina announced in September 2020 that it would buy Grail for $7.1 billion.

The lawsuit, filed by Icahn’s investment conglomerate, contends that Illumina’s board of directors “caused Illumina to break the law” by pushing through the acquisition of Grail on Aug. 17, 2021. The deal was already being scrutinized by antitrust regulators and it only intensified after the purchase closed.

Illumina’s stock value declined, which drew the ire of shareholders, like Icahn.

The complaint names Illumina’s former CEO, Francis deSouza, and former chairman of the board, John W. Thompson, both of whom were ousted following a proxy battle led by Icahn. Other defendants include seven current board members: Frances Arnold; Caroline Dorsa; Robert Epstein; Scott Gottlieb; Gary Guthart; Philip Schiller; and Susan Siegel.

The lawsuit accuses the defendants of having conflicting interests in the Grail acquisition that influenced their decisions in the deal. It also states the “defendants have entrenched themselves on the board wrongfully — and orchestrated Illumina’s widely-reported ‘crusade’ and ‘obsessive quest’ to complete Illumina’s acquisition of Grail.”

Illumina is also named as a nominal defendant, meaning it is not responsible for the issues within the complaint, but the company is named due to its technical connection to the matter.

The lawsuit was filed in the Delaware Court of Chancery on Oct. 17, but was unsealed on Friday. The public civil complaint — first reported on by Endpoints News — has portions redacted, which is a customary practice for cases involving corporations in the Delaware court.

Illumina declined to comment on the lawsuit.

The complaint seeks to recover at least $476 million in monetary damages for Illumina and its shareholders, plus the disclosure of material facts surrounding the acquisition.

The lawsuit landed a week after Europe’s antitrust watchdog agency ordered Illumina to divest Grail on Oct. 12. The order states that Illumina will have at least 12 months to divest Grail and return it to its financial and structural functions prior to the acquisition.

Illumina contends that European regulators do not have jurisdiction to impose such restrictions on the acquisition and is challenging it in court.

In July, the European Union hit the biotech company with a $476 million fine — one of the largest ever imposed by the agency — for moving ahead with the deal.

The company has also been up against pressure from United States regulators. The Federal Trade Commission has rejected the merger as anti-competitive, and the deal is being investigated by the Securities and Exchange Commission. Illumina is challenging the FTC divestiture order in federal appellate court.

The fate of the deal rests on the outcome of the various appeals and legal proceedings with regulators.

If Illumina loses either of its appeals in the United States or Europe, it will divest Grail. But, if Illumina wins both cases, it will decide whether to either integrate Grail or divest some or all of it. The San Diego Union-Tribune